WAFD INC 10-K

Item 8. Financial Statements and Supplementary Data Index to financial statements and financial statement schedules: Report of Independent Registered Public Accounting Firm (PCAOB ID: 34 ) 61 Financial statements and supplementary data: Consolidated Statements of Financial Condition 65 Consolidated Statements of Operations 66 Consolidated Statements of Comprehensive Income 67 Consolidated Statements of Shareholders' Equity 68 Consolidated Statements of Cash Flows 69 Notes to Consolidated Financial Statements 71 61 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of WaFd, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated statements of financial condition of WaFd, Inc. and subsidiaries (the “Company”) as of September 30, 2023 and 2022, the related consolidated statements of operations, comprehensive income, shareholders' equity, and cash flows for each of the three years in the period ended September 30, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2023, and 2022, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2023, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 17, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Allowance for Loan Losses - Refer to Notes A and E to the financial statements Critical Audit Matter Description The estimates of the Company's expected credit losses under the CECL methodology is based on relevant information about current conditions, past events, and reasonable and supportable forecasts regarding collectability of the reported amounts. In order to estimate the allowance for loan losses ("ALL"), the Company used either a cohort or weighted average remaining maturities methodology to determine the historical loss rate, by loan portfolio class, then considered whether qualitative adjustments to those historical loss rates were warranted. Significant management judgments are required in determining whether, and to what extent, qualitative adjustments for each portfolio loan class are required. These adjustments are made after considering 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 62 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, not captured in the historical loss rates and 2) reasonable and supportable forecasts of future economic conditions and collateral values. Given the significance of the ALL, and management judgment required for quantitative and qualitative evaluation of past events, current conditions, and reasonable and supportable forecasts, performing audit procedures to evaluate the ALL requires a high degree of auditor judgment and increased extent of effort. We have identified the ALL estimate for certain loan portfolio classes as a critical audit matter based upon the above factors. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the ALL estimate for loan portfolio classes for which we concluded the ALL was significant included the following, among others: • We tested the effectiveness of management’s controls over model applicability, qualitative adjustments, the reasonable and supportable forecast adjustments, and management's review and approval process over the final determination of the ALL. • We tested the underlying data and mathematical accuracy of the cohort methodology used to determine most loan portfolio class historical loss rates. We also evaluated the reasonableness and conceptual soundness of the methodology. • To test the qualitative adjustments, we performed analysis to evaluate management’s determination of the qualitative adjustments made to account for specific risk characteristics or current conditions that differ from the period over which the historical loss rate was determined. Our procedures included evaluating management’s inputs and assumptions used in determining the qualitative and forecast adjustments by comparing the information to internal and external source data including, among others, the economic forecasts utilized by the Company and third-party economic forecasts for selected assumptions. In addition, we performed procedures on the overall ALL amount, inclusive of the qualitative adjustments, by evaluating the Company’s analysis of peers’ estimated current expected credit losses for loans to the Company’s recorded ALL. Goodwill - Refer to Note A to the financial statements Critical Audit Matter Description The Company’s goodwill balance as of September 30, 2023, included within Intangible Assets, is related to the Company’s single reporting unit. Goodwill is evaluated for potential impairment on an annual basis and between tests if circumstances such as material adverse changes in legal, business, regulatory and economic factors exist. The Company performed its annual impairment test as of August 31, 2023, using a quantitative impairment approach, and concluded the fair value of the single reporting unit exceeded its respective carrying value and did not result in an impairment for the reporting unit. When performing the quantitative assessment of goodwill impairment, the Company estimated fair value of its reporting unit using the market capitalization approach, based on its stock price, adjusted for the effect of a control premium. Given the significant judgments made by management to estimate the fair value of its reporting unit, including the selection of a control premium, performing audit procedures to evaluate goodwill for impairment required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the fair value of the reporting unit and selected control premium included the following procedures, among others: • We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of fair value of the reporting unit and selection of the control premium. 63 • With the assistance of our fair value specialists we: ◦ Evaluated the appropriateness of using the market capitalization approach to estimate the fair value of the reporting unit. ◦ Evaluated certain inputs and assumptions, within management’s impairment analysis, including assessing including peer company transaction data, to determine applicability. ◦ Performed procedures to assess the reasonableness of the control premium assumption used in the Company’s market capitalization approach. ◦ Assessed the mathematical accuracy of the valuation used in the impairment test. /s/ Deloitte & Touche LLP Seattle, Washington November 17, 2023 We have served as the Company’s auditor since 1982. 64 WAFD, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION September 30, 2023 September 30, 2022 (In thousands, except share data) ASSETS Cash and cash equivalents $ 980,649 $ 683,965 Available-for-sale securities, at fair value 1,995,097 2,051,037 Held-to-maturity securities, at amortized cost 423,586 463,299 Loans receivable, net of allowance for loan losses of $ 177,207 and $ 172,808 17,476,550 16,113,564 Interest receivable 87,003 63,872 Premises and equipment, net 237,011 243,062 Real estate owned 4,149 6,667 FHLB stock 126,820 95,073 Bank owned life insurance 242,919 237,931 Intangible assets, including goodwill of $ 304,750 and $ 303,457 310,619 309,009 Federal and state income tax assets, net 8,479 — Other assets 581,793 504,652 $ 22,474,675 $ 20,772,131 LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities Customer accounts Transaction deposit accounts $ 10,765,313 $ 12,691,527 Time deposit accounts 5,305,016 3,338,043 16,070,329 16,029,570 Borrowings 3,650,000 2,125,000 Advance payments by borrowers for taxes and insurance 52,550 50,051 Federal and state income tax liabilities, net — 3,306 Accrued expenses and other liabilities 275,370 289,944 20,048,249 18,497,871 Commitments and contingencies (see Note M) 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; 136,466,579 and 136,270,886 shares issued; 64,736,916 and 65,330,126 shares outstanding 136,467 136,271 Paid-in capital 1,687,634 1,686,975 Accumulated other comprehensive income (loss), net of taxes 46,921 52,481 Treasury stock, at cost; 71,729,663 and 70,940,760 shares ( 1,612,345 ) ( 1,590,207 ) Retained earnings 1,867,749 1,688,740 2,426,426 2,274,260 $ 22,474,675 $ 20,772,131 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 65 WAFD, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year ended September 30, 2023 2022 2021 (In thousands, except share data) INTEREST INCOME Loans receivable $ 900,068 $ 601,592 $ 537,660 Mortgage-backed securities 43,184 26,332 24,708 Investment securities and cash equivalents 99,703 38,435 29,242 1,042,955 666,359 591,610 INTEREST EXPENSE Customer accounts 237,233 43,041 42,313 Borrowings 115,488 28,729 44,188 352,721 71,770 86,501 Net interest income 690,234 594,589 505,109 Provision (release) for credit losses 41,500 3,000 500 Net interest income after provision (release) 648,734 591,589 504,609 OTHER INCOME Gain (loss) on sale of investment securities 33 99 14 Gain (loss) on termination of hedging derivatives ( 867 ) — 14,110 Prepayment penalty on long-term debt — — ( 13,788 ) Loan fee income 3,885 7,168 6,899 Deposit fee income 26,050 25,942 24,686 Other income 23,100 33,163 28,640 52,201 66,372 60,561 OTHER EXPENSE Compensation and benefits 196,534 193,917 176,106 Occupancy 41,579 42,499 39,610 FDIC insurance premiums 20,025 9,531 14,368 Product delivery 20,973 19,536 18,505 Information technology 49,447 47,202 42,737 Other expense 47,477 45,890 41,133 376,035 358,575 332,459 Gain on real estate owned, net 176 651 427 Income before income taxes 325,076 300,037 233,138 Income tax expense 67,650 63,707 49,523 Net income 257,426 236,330 183,615 Dividends on preferred stock 14,625 14,625 10,034 Net income available to common shareholders $ 242,801 $ 221,705 $ 173,581 PER SHARE DATA Basic earnings per common share $ 3.72 $ 3.40 $ 2.39 Diluted earnings per common share 3.72 3.39 2.39 Dividends paid on common stock per share 0.99 0.95 0.91 Basic weighted average number of common shares outstanding 65,192,510 65,287,650 72,529,188 Diluted weighted average number of common shares outstanding 65,255,283 65,404,110 72,565,920 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 66 WAFD, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year ended September 30, 2023 2022 2021 (In thousands) Net income $ 257,426 $ 236,330 $ 183,615 Other comprehensive income (loss), net of tax: Net unrealized gain (loss) during the period on available-for-sale debt securities, net of tax of $ 2,493 , $ 36,908 and $( 2,020 ) ( 9,360 ) ( 123,077 ) 6,762 Reclassification adjustment of net (gain) loss included in net income during the period from sale of available-for-sale securities, net of tax of $( 9 ), $( 23 ) and $( 3 ) 26 76 11 Net unrealized gain (loss) from investment securities, net of reclassification adjustment ( 9,334 ) ( 123,001 ) 6,773 Net unrealized gain (loss) during the period on borrowing cash flow hedges, net of tax of $( 654 ), $( 31,805 ) and $( 17,003 ) 3,774 105,697 56,924 Reclassification adjustment of net (gain) loss included in net income during the period from hedging derivatives, net of tax of $ 0 , $ 0 and $ 3,245 — — ( 10,865 ) Net unrealized gain (loss) in cash flow hedging instruments, net of reclassification adjustment 3,774 105,697 46,059 Other comprehensive income (loss) ( 5,560 ) ( 17,304 ) 52,832 Comprehensive income $ 251,866 $ 219,026 $ 236,447 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 67 WAFD, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands) Preferred Stock Common Stock Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Balance at September 30, 2020 $ — $ 135,727 $ 1,678,843 $ 1,420,906 $ 16,953 $ ( 1,238,296 ) $ 2,014,133 Net income — — — 183,615 — — 183,615 Other comprehensive income (loss) — — — — 52,832 — 52,832 Issuance of preferred stock, net 300,000 — ( 6,675 ) — — — 293,325 Dividends on common stock ($ 0.91 per share) — — — ( 65,876 ) — — ( 65,876 ) Dividends on preferred stock ($ 33.45 per share) — — — ( 10,034 ) — — ( 10,034 ) Proceeds from stock issuances — 20 319 — — — 339 Stock-based compensation expense — 246 6,135 — — — 6,381 Treasury stock purchased — — — — — ( 348,651 ) ( 348,651 ) Balance at September 30, 2021 300,000 135,993 1,678,622 1,528,611 69,785 ( 1,586,947 ) 2,126,064 Net income — — — 236,330 — — 236,330 Other comprehensive income (loss) — — — ( 17,304 ) — ( 17,304 ) Dividends on common stock ($ 0.95 per share) — — — ( 61,576 ) — — ( 61,576 ) Dividends on preferred stock ($ 48.75 per share) — — — ( 14,625 ) — — ( 14,625 ) Proceeds from stock issuances — 65 1,758 — — — 1,823 Stock-based compensation expense — 213 6,595 — — — 6,808 Treasury stock purchased — — — — — ( 3,260 ) ( 3,260 ) Balance at September 30, 2022 300,000 136,271 1,686,975 1,688,740 52,481 ( 1,590,207 ) 2,274,260 Net income — — — 257,426 — — 257,426 Other comprehensive income (loss) — — — — ( 5,560 ) — ( 5,560 ) Dividends on common stock ($ 0.99 per share) — — — ( 63,792 ) — — ( 63,792 ) Dividends on preferred stock ($ 48.75 per share) — — — ( 14,625 ) — — ( 14,625 ) Proceeds from stock issuances — 42 1,224 — — — 1,266 Stock-based compensation expense — 154 ( 565 ) — — 8,325 7,914 Treasury stock purchased — — — — — ( 30,463 ) ( 30,463 ) Balance at September 30, 2023 $ 300,000 $ 136,467 $ 1,687,634 $ 1,867,749 $ 46,921 $ ( 1,612,345 ) $ 2,426,426 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 68 WAFD, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended September 30, 2023 2022 2021 (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 257,426 $ 236,330 $ 183,615 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization, accretion and other, net 22,970 64,050 33,914 Stock-based compensation expense 7,914 6,808 6,381 Provision (release) for credit losses 41,500 3,000 500 Loss (gain) on sale of investment securities ( 33 ) ( 99 ) ( 14 ) Prepayment penalty on early extinguishment of debt — — 13,788 Gain on early termination of long term borrowing hedge — — ( 14,110 ) Gain on settlements of bank owned life insurance ( 821 ) ( 1,385 ) — Impairment loss on premises and equipment 6 — 944 Net realized (gain) loss on sales of premises, equipment and real estate owned ( 1,153 ) 655 ( 593 ) Decrease (increase) in accrued interest receivable ( 23,131 ) ( 13,236 ) 3,163 Decrease (increase) in federal and state income tax receivable ( 6,650 ) 3,877 1,831 Decrease (increase) in cash surrender value of bank owned life insurance ( 5,976 ) ( 5,549 ) ( 5,514 ) Decrease (increase) in other assets ( 67,342 ) ( 100,146 ) 155,599 Increase (decrease) in federal and state income tax liabilities ( 3,306 ) 8,386 ( 15,781 ) Increase (decrease) in accrued expenses and other liabilities ( 7,447 ) 65,774 ( 49,269 ) Net cash provided (used) by operating activities 213,957 268,465 314,454 CASH FLOWS FROM INVESTING ACTIVITIES Origination of loans and principal repayments, net ( 1,330,399 ) ( 1,748,955 ) ( 556,274 ) Loans purchased ( 79,965 ) ( 576,697 ) ( 488,147 ) FHLB & FRB stock purchase ( 654,805 ) ( 293,800 ) ( 296,073 ) FHLB & FRB stock redeemed 623,058 301,590 335,200 Available-for-sale securities purchased ( 376,481 ) ( 587,942 ) ( 530,227 ) Principal payments and maturities of available-for-sale securities 420,154 510,156 646,532 Proceeds from sales of available-for-sale investment securities 1,169 5,020 1,499 Held-to-maturity securities purchased — ( 195,357 ) — Principal payments and maturities of held-to-maturity securities 39,414 95,326 332,001 Proceeds from sales of real estate owned 7,192 6,978 3,340 Proceeds from settlements of bank owned life insurance 1,809 2,266 — Purchase of strategic investments ( 12,500 ) — — Net cash received (paid) in business combinations ( 2,590 ) — ( 1,500 ) Proceeds from sales of premises and equipment 1,090 41 3,376 Premises and equipment purchased and REO improvements ( 15,063 ) ( 11,790 ) ( 29,472 ) Net cash provided (used) by investing activities ( 1,377,917 ) ( 2,493,164 ) ( 579,745 ) CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in customer accounts 40,759 487,458 1,762,488 Proceeds from borrowings 17,175,000 7,345,000 7,400,000 Repayments of borrowings ( 15,650,000 ) ( 6,940,000 ) ( 8,393,788 ) Proceeds from the early termination of long term borrowing hedge — — 14,110 Proceeds from stock-based awards 1,089 1,823 339 Proceeds from issuance of preferred stock, net — — 293,325 Dividends paid on common stock ( 63,792 ) ( 61,576 ) ( 65,876 ) Dividends paid on preferred stock ( 14,625 ) ( 14,625 ) ( 6,378 ) Proceeds from employee stock purchase 177 — — Treasury stock purchased ( 30,463 ) ( 3,260 ) ( 348,651 ) Increase (decrease) in advance payments by borrowers for taxes and insurance 2,499 3,035 ( 2,446 ) Net cash provided (used) by financing activities 1,460,644 817,855 653,123 Increase (decrease) in cash and cash equivalents 296,684 ( 1,406,844 ) 387,832 Cash and cash equivalents at beginning of year 683,965 2,090,809 1,702,977 Cash and cash equivalents at end of year $ 980,649 $ 683,965 $ 2,090,809 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 69 WAFD, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended September 30, 2023 2022 2021 (In thousands) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Non-cash investing activities Real estate acquired through foreclosure $ 121 $ 73 $ 221 Other personal property acquired through foreclosure — 577 — Non-cash financing activities Preferred stock dividend payable 3,656 3,656 3,656 Cash paid during the year for Interest 364,386 65,175 71,845 Income taxes 61,245 35,098 47,854 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 70 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 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. WaFd, Inc., a Washington corporation was formed as the Bank’s holding company in November, 1994 under the name Washington Federal, Inc. Washington Federal, Inc. changed its name effective September 29, 2023 to Wafd, Inc. 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. 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 and use of estimates. The Company’s accounting and financial reporting policies conform to accounting principles generally accepted in the United States of America (U.S. GAAP). Inter-company balances and transactions have been eliminated in consolidation. In preparing the consolidated financial statements, the Company makes estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and revenues and expenses during the reporting periods and related disclosures. The areas that require application of significant management judgments often result in the need to make estimates about the effect of matters that are inherently uncertain and may change in future periods. Actual results could differ materially from those estimates. Certain amounts in the financial statements from prior periods have been reclassified to conform to the current financial statement presentation. In certain instances, amounts in text are presented by rounding to the nearest thousand. The Company's fiscal year end is September 30. All references to 2023, 2022 and 2021 represent balances as of September 30, 2023, September 30, 2022, and September 30, 2021, or activity for the fiscal years then ended. Preferred stock. On February 8, 2021, in connection with an underwritten public offering, the Company issued 300,000 shares of 4.875 % Noncumulative Perpetual Series A Preferred Stock (“Series A Preferred Stock”). Net proceeds, after underwriting discounts and expenses, were $ 293,325,000 . The public offering consisted of the issuance and sale of 12,000,000 depositary shares, each representing a 1/40 th interest in a share of the Series A Preferred Stock, at a public offering price of $ 25.00 per depositary share. Holders of the depositary shares are entitled to all proportional rights and preferences of the Series A Preferred Stock (including, dividend, voting, redemption and liquidation rights). The depositary shares are traded on the NASDAQ Global Select Market under the symbol "WAFDP." The Series A Preferred Stock is redeemable at the option of the Company, subject to all applicable regulatory approvals, on or after April 15, 2026. Cash and cash equivalents. Cash and cash equivalents include cash on hand, amounts due from banks, overnight investments and repurchase agreements with an initial maturity of three months or less. 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 September 30, 2023. As of September 30, 2023 and September 30, 2022, the Company held counterparty cash collateral of $ 326,750,000 and $ 284,400,000 , respectively, related to derivative contracts. Equity securities - The Company records equity securities within Other assets in its Consolidated Statements of Financial Condition. These equity investments are accounted for under different methods. • Low-income housing tax credit investments are accounted for under the proportional amortization method. • 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 71 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 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 September 30, 2023, equity investments held by the Company and recorded at NAV had a carrying amount of $ 37,587,000 and a remaining unfunded commitment of $ 6,039,000 . 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. Debt securities, including mortgage-backed securities. The Company accounts for debt securities in two categories: held-to-maturity and available-for-sale. Premiums and discounts on debt securities are deferred and recognized into income over the contractual life of the asset using the effective interest method. Held-to-maturity securities are accounted for at amortized cost, but the Company must have both the positive intent and the ability to hold those securities to maturity. There are very limited circumstances under which securities in the held-to-maturity category can be sold without jeopardizing the cost basis of accounting for the remainder of the securities in this category. Available-for-sale securities are accounted for at fair value. Gains and losses realized on the sale of these securities are accounted for based on the specific identification method. Unrealized gains and losses for available-for-sale securities are excluded from earnings and reported net of the related tax effect in the accumulated other comprehensive income component of shareholders' equity. 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. 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 September 30, 2023, the Company determined that the expected credit loss on its corporate and municipal bonds was immaterial, and therefore, an allowance for credit losses was not recorded. See Note C "Investment Securities" and Note F "Fair Value Measurements" for more information about HTM debt securities. Allowance for Credit Losses (Available-for-Sale Debt Securities). The impairment model for available-for-sale (“AFS”) debt securities differs from the CECL methodology applied for HTM debt securities because AFS debt securities are measured at fair value rather than amortized cost. For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either criteria is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities where neither of the criteria are met, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the credit rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited to the amount that the fair value is less than the amortized cost basis. Any remaining discount that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as a provision (or release) for credit losses. Losses are charged against the allowance when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met. As of September 30, 2023, the Company determined that the unrealized loss positions in AFS securities were not the result of credit losses, and therefore, an allowance for credit losses was not recorded. See Note C "Investment Securities" and Note F "Fair Value Measurements" for more information about AFS debt securities. Loans receivable. Loans that are performing in accordance with their contractual terms are carried at the unpaid principal balance, net of premiums, discounts and net deferred loan fees. Net deferred loan fees include non-refundable loan origination fees less direct loan origination costs. Net deferred loan fees, premiums and discounts are amortized into interest income using either the interest method or straight-line method over the terms of the loans, adjusted for actual prepayments. In addition to fees and costs for originating loans, various other fees and charges related to existing loans may occur, including prepayment charges, late charges and assumption fees. 72 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 When a borrower fails to make a required payment on a loan, the Bank attempts to cure the deficiency by contacting the borrower. Contact is made after a payment is 30 days past its grace period. In most cases, deficiencies are cured promptly. If the delinquency is not cured within 90 days, the Bank may institute appropriate action to foreclose on the property. If foreclosed, the property is sold at a public sale and may be purchased by the Bank. 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). See Note E "Allowance for Losses on Loans" for details. The ACL consists of the allowance for loan losses and the reserve for unfunded commitments. The estimate of expected credit losses under the CECL methodology is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is generally the starting point for estimating expected credit losses. We then consider whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period that historical experience was based for each loan type. Finally, we consider forecasts about future economic conditions or changes in collateral values that are reasonable and supportable. Portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its ACL. The Company has designated two loan portfolio segments, commercial loans and consumer loans. These loan portfolio segments are further disaggregated into classes, which represent loans of similar type, risk characteristics, and methods for monitoring and assessing credit risk. The commercial loan portfolio segment is disaggregated into five classes: multi-family, commercial real estate, commercial and industrial, construction, and land acquisition and development. The risk of loss for the commercial loan portfolio segment is generally most indicated by the credit risk rating assigned to each borrower. Commercial loan risk ratings are determined by experienced senior credit officers based on specific facts and circumstances and are subject to periodic review by an independent internal team of credit specialists. The consumer loan portfolio segment is disaggregated into five classes: single-family-residential mortgage, custom construction, consumer lot loans, home equity lines of credit, and other consumer. The risk of loss for the consumer loan portfolio segment is generally most indicated by delinquency status and general economic factors. Each commercial and consumer loan portfolio class may also be further segmented based on risk characteristics. For most of our loan portfolio classes, the historical loss experience is determined using a cohort methodology. This method pools loans into groups (“cohorts”) sharing similar risk characteristics and tracks each cohort’s net charge-offs over the lives of the loans to calculate a historical loss rate. The historical loss rates for each cohort are then averaged to calculate an overall historical loss rate which is applied to the current loan balance to arrive at the quantitative baseline portion of the allowance for credit losses for the respective loan portfolio class. For certain loan portfolio classes, the Company determined there was not sufficient historical loss information to calculate a meaningful historical loss rate using the cohort methodology. For any such loan portfolio class, the weighted-average remaining maturity (“WARM”) methodology is being utilized until sufficient historical loss data is obtained. The WARM method multiplies an average annual loss rate by the expected remaining life of the loan pool to arrive at the quantitative baseline portion of the allowance for credit losses for the respective loan portfolio class. The Company also considers qualitative adjustments to the historical loss rate for each loan portfolio class. The qualitative adjustments for each loan class consider the conditions over the period from which historical loss experience was based and are split into two components: 1) asset or class specific risk characteristics or current conditions at the reporting date related to portfolio credit quality, remaining payments, volume and nature, credit culture and management, business environment or other management factors and 2) reasonable and supportable forecast of future economic conditions and collateral values. The Company performs a quarterly asset quality review which includes a review of forecasted gross charge-offs and recoveries, nonperforming assets, criticized loans, risk rating migration, delinquencies, etc. The asset quality review is performed by management and the results are used to consider a qualitative overlay to the quantitative baseline. The second qualitative adjustment noted above, economic conditions and collateral values, encompasses a one-year reasonable and supportable forecast period. The overlay adjustment for the reasonable and supportable forecast assumes an immediate reversion after the one-year forecast period to historical loss rates for the remaining life of the respective loan pool. 73 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 When management deems it to be appropriate, the Company establishes a specific reserve for individually evaluated loans that do not share similar risk characteristics with the loans included in each respective loan pool. These individually evaluated loans are removed from their respective pools and typically represent collateral dependent loans but may also include other non-performing loans or troubled debt restructurings (“TDRs”). In addition, the Company individually evaluates “reasonably expected” TDRs, which are identified by the Company as a loan expected to be classified as a TDR within the next six months. Management judgment is utilized to make this determination. Troubled debt restructured loans ("TDRs"). The Company will consider modifying the interest rates and terms of a loan if it determines that a modification is a better alternative to foreclosure. Most TDRs are accruing and performing loans where the borrower has proactively approached the Company about modifications due to temporary financial difficulties. Each request is individually evaluated for merit and likelihood of success. The concession for these loans is typically a payment reduction through a rate reduction of 100 to 200 bps for a specific term, usually six to 12 months. Interest-only payments may also be approved during the modification period. Principal forgiveness is generally not an available option for restructured loans. Before granting approval to modify a loan in a TDR, the borrower’s ability to repay is evaluated, including: current income levels and debt to income ratio, borrower’s credit score, payment history of the loan and updated evaluation of the secondary repayment source. The Company also modifies some loans that are not classified as TDRs as the modification is due to a restructuring where the effective interest rate on the debt is reduced to reflect a decrease in market interest rates. The Company's ACL reflects the effects of a TDR when management reasonably expects at the reporting date that a TDR will be executed with an individual borrower. Non-accrual loans. Loans are placed on nonaccrual 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 nonaccrual status, previously accrued but unpaid interest is deducted from interest income. The Company 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 Company expects full collection of principal and interest, the loan is returned to full accrual status. Any interest ultimately collected is credited to income in the period of recovery. A loan is charged-off when the loss is estimable and it is confirmed that the borrower is not expected to be able to meet contractual obligations. If a consumer loan is on non-accrual status before becoming a TDR it will stay on non-accrual status following restructuring until it has been performing for at least six months, at which point it may be moved to accrual status. If a loan is on accrual status before it becomes a TDR, and management concludes that full repayment is probable based on internal evaluation, it will remain on accrual status following restructuring. If the restructured consumer loan does not perform, it is placed on non-accrual status when it is 90 days delinquent. For commercial loans, six consecutive payments on newly restructured loan terms are required prior to returning the loan to accrual status. In some instances, after the required six consecutive payments are made, 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. Accrued interest receivable. The Company has made the following elections regarding accrued interest receivable ("AIR"): • Presenting accrued interest receivable balances separately from their underlying instruments within the consolidated statements of financial condition. • Excluding accrued interest receivable that is included in the amortized cost of financing receivables from related disclosure requirements. • Continuing our policy to write off accrued interest receivable by reversing interest income in cases where the Company does not reasonably expect to receive payment. • Not measuring an allowance for credit losses for accrued interest receivable due to the Company’s policy of writing off uncollectible accrued interest receivable balances in a timely manner. We believe accrued interest receivable recorded as of September 30, 2023 is collectible. Off-balance-sheet credit exposures. The only material off-balance-sheet credit exposures are loans in process and unused lines of credit. 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 74 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 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 M "Commitments and Contingencies" for details. Client swap program hedges. Interest rate swap agreements are provided to certain clients who desire to convert their obligations from variable to fixed interest rates. Under these agreements, the Bank enters into a variable-rate loan agreement with a customer in addition to a swap agreement, and then enters into a corresponding swap agreement with a third party in order to offset its exposure on the customer swap agreement. As the interest rate swap agreements with the customers and third parties are not designated as accounting hedges under FASB ASC 815, the instruments are marked to market in earnings. The change in fair value of the offsetting swaps are included in other noninterest income and there is minimal impact on net income. There is fee income earned on the swaps that is included in loan fee income. Borrowings cash flow hedges. The Company has entered into interest rate swaps to convert a series of future short-term borrowings to fixed-rate payments. These interest rate swaps qualify as cash flow hedging instruments under ASC 815 so gains and losses are recorded in Other Comprehensive Income to the extent the hedge is effective. Gains and losses on the interest rate swaps are reclassified from OCI to earnings in the period the hedged transaction affects earnings and are included in the same income statement line item that the hedged transaction is recorded. Mortgage loan "last-of-layer" portfolio hedges. The Company has entered into interest rate swaps to hedge the portion of the respective closed portfolios of prepayable mortgage loans that are expected to remain at the end of the hedge term. These hedges qualify as last-of-layer hedges under ASC 815 and provide for matching of the recognition of the gains and losses on the interest rate swap and the related hedged item. Commercial loan fair value hedges. The Company has entered into interest rate swaps to hedge long term fixed rate commercial loans. These hedges qualify as fair value hedges under ASC 815 and provide for matching of the recognition of the gains and losses on the interest rate swap and the related hedged loan. Premises and equipment. Premises and equipment are stated at cost, less accumulated depreciation. Depreciation is computed on the straight-line method over the estimated useful lives of the respective assets. Costs for improvements are capitalized. Charges for ordinary maintenance and repairs are expensed to operations as incurred. Real estate owned. Real estate properties acquired through foreclosure of loans or through acquisitions are recorded initially at fair value less selling costs and are subsequently recorded at lower of cost or fair value. Costs for improvements are capitalized. Any gains (losses) and maintenance costs are recorded in Gain (loss) on real estate owned, net. Intangible assets. Goodwill represents the excess of the cost of businesses acquired over the fair value of the net assets acquired. Other intangibles, including core deposit intangibles, are acquired assets that lack physical substance but can be distinguished from goodwill. Goodwill is not amortized but is evaluated for potential impairment on an annual basis and between tests if circumstances such as material adverse changes in legal, business, regulatory and economic factors exist. We have determined our goodwill balance is all related to a single reporting unit and perform a quantitative impairment assessment. An impairment loss is recorded when the carrying amount of goodwill exceeds its implied fair value. If circumstances indicate that the carrying value of the assets may not be recoverable, an impairment charge could be recorded. Other intangible assets are amortized over their estimated lives and are subject to impairment testing when events or circumstances change. The Company performed its annual impairment assessment as of August 31, 2023 and concluded the fair value of our single reporting unit exceeded its respective carrying value and did not result in impairment for the reporting unit. When performing the quantitative assessment of goodwill impairment, we estimated the fair value of our reporting unit using the market capitalization approach, based on our stock price, adjusted for the effect of a control premium. The Company continuously monitors for events and circumstances that could negatively impact the key assumptions in determining fair value. While the Company believes the judgments and assumptions used in the goodwill impairment test is reasonable, different assumptions or changes in general industry, market and macro-economic conditions could change the estimated fair values and, therefore, future impairment charges could be required, which could be material to the consolidated financial statements. 75 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 The table below provides detail regarding the Company's intangible assets. Goodwill Core Deposit and Other Intangibles Total (In thousands) Balance at September 30, 2021 $ 303,457 $ 6,562 $ 310,019 Additions — — — Amortization — ( 1,010 ) ( 1,010 ) Balance at September 30, 2022 303,457 5,552 309,009 Additions 1,293 1,297 2,590 Amortization — ( 980 ) ( 980 ) Balance at September 30, 2023 $ 304,750 $ 5,869 $ 310,619 The table below presents the estimated future amortization expense of other intangibles for the next five years. Fiscal Year Expense (In thousands) 2024 $ 1,030 2025 981 2026 938 2027 763 2028 567 Income taxes. Income taxes are accounted for using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, a deferred tax asset or liability is determined based on the temporary differences between the financial statement and corresponding tax treatment of income, gains, losses, deductions or credits using enacted tax rates in effect for the year in which the differences are expected to reverse. The provision for income taxes includes current and deferred income tax expense based on net income adjusted for temporary and permanent differences such as depreciation, loan loss reserve, tax-exempt interest, and affordable housing tax credits. Reserves for uncertain tax positions, together with any related interest and penalties, if applicable, and amortization of affordable housing tax credit investments are recorded within income tax expense. Accounting for stock-based compensation. We recognize in the statement of operations the grant-date fair value of stock options and other equity-based forms of compensation issued to employees over the employees' requisite service period (generally the vesting period). The requisite service period may be subject to performance conditions. Stock options and restricted stock awards generally vest ratably over two to five years and are recognized as expense over that same period of time. The exercise price of each option equals the market price of the Company's Common Stock on the date of the grant, and the maximum term is ten years . Certain grants of restricted stock are subject to performance-based and market-based vesting as well as other approved vesting conditions and cliff vest based on those conditions. Compensation expense is recognized over the service period to the extent restricted stock awards are expected to vest. See Note P "Stock Award Plans" for additional information. Business segments. As the Company manages its business and operations on a consolidated basis, management has determined that there is one reportable business segment. Regulatory matters. On October 9, 2013, the CFPB entered a Consent Order against the Bank that required the Bank to pay a civil money penalty of $ 34,000 , and to adopt an enhanced compliance program related to reporting Home Mortgage Disclosure 76 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 Act ("HMDA") data. The Bank has adopted an enhanced HMDA program, which continues to be subject to review by the CFPB. On October 27, 2020 the CFPB entered a second Consent Order against the Bank for violations related to the Bank’s HMDA reporting obligations. The 2020 Consent Order required the Bank to pay a $ 200,000 civil money penalty and develop and implement a HMDA compliance management system. Both HMDA Consent Orders remain in place. NOTE B - NEW ACCOUNTING PRONOUNCEMENTS In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815) . The amendments in this ASU clarify the guidance on ASC 815 on fair value hedge accounting of interest rate risk for portfolios and financial assets. Among other things, the amended guidance establishes the "last-of-layer" method for making the fair value hedge accounting for these portfolios more accessible and renames that method the "portfolio layer" method. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We do not expect the amendments to have a material effect on our consolidated financial statements. In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326) . The amendments in this ASU eliminate the guidance on troubled debt restructurings while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors made to borrowers experiencing financial difficulties. The ASU also requires that entities disclose current-period gross charge-offs by year of origination for loans and leases. The amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We do not expect the amendments to have a material effect on our consolidated financial statements. 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. We do not expect this ASU to have a material effect on our consolidated financial statements. In August 2023, the FASB affirmed ASU 2023-ED100 , Income Tax - Improvements to Income Tax Disclosures (Topic 740) which will require reporting companies to break out their income tax expense and tax rate reconciliation in more details. For public companies, the requirements will become effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We do 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. This guidance is effective for the Company no later than June 30, 2027. We do not expect the amendments in this update to have a material impact on our consolidated financial statements. 77 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 NOTE C - INVESTMENT SECURITIES The tables below provide detail regarding the amortized cost and fair value of available-for-sale and held-to-maturity investment securities. September 30, 2023 Amortized Cost Gross Unrealized Fair Value Yield Gains Losses ($ 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 years 18,894 — ( 563 ) 18,331 4.70 5 to 10 years 87,922 177 — 88,099 5.76 Over 10 years 106,340 831 ( 13 ) 107,158 5.84 Asset-backed securities due 1 to 5 years 18,579 — ( 715 ) 17,864 6.06 5 to 10 years 36,875 2 ( 99 ) 36,778 6.11 Over 10 years 539,911 578 ( 7,115 ) 533,374 6.35 Corporate debt securities due 1 to 5 years 151,893 895 ( 1,787 ) 151,001 5.14 5 to 10 years 113,221 — ( 21,700 ) 91,521 3.87 Municipal bonds due 5 to 10 years 5,720 — ( 701 ) 5,019 3.00 Over 10 years 29,832 361 ( 550 ) 29,643 5.85 Mortgage-backed securities Agency pass-through certificates 1,005,928 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 certificates 423,586 — ( 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 % 78 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 September 30, 2022 Amortized Cost Gross Unrealized Fair Value Yield Gains Losses ($ in thousands) Available-for-sale securities U.S. government and agency securities due 1 to 5 years $ 40,403 $ — $ ( 1,049 ) $ 39,354 3.03 % Asset-backed securities due 1 to 5 years 22,527 — ( 1,141 ) 21,386 3.27 5 to 10 years 82,962 4 ( 547 ) 82,419 3.53 Over 10 years 668,482 783 ( 6,069 ) 663,196 3.86 Corporate debt securities due Within 1 year 75,000 4 ( 200 ) 74,804 3.74 1 to 5 years 151,411 — ( 2,748 ) 148,663 3.59 5 to 10 years 114,414 — ( 24,124 ) 90,290 3.87 Municipal bonds due 5 to 10 years 5,751 — ( 361 ) 5,390 3.00 Over 10 years 29,871 400 ( 699,000 ) 29,572 5.85 Mortgage-backed securities Agency pass-through certificates 971,916 117 ( 76,070 ) 895,963 2.81 2,162,737 1,308 ( 113,008 ) 2,051,037 3.36 Held-to-maturity securities Mortgage-backed securities Agency pass-through certificates 463,299 22 ( 56,461 ) 406,860 2.88 463,299 22 ( 56,461 ) 406,860 2.88 $ 2,626,036 $ 1,330 $ ( 169,469 ) $ 2,457,897 3.28 % The Company purchased $ 376,481,000 of available-for-sale investment securities and no held-to-maturity investment securities during 2023. Sales of available-for-sale securities totaled $ 1,169,000 and there were no sales of held-to-maturity investment securities in 2023. Substantially all 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 $ 8,641,000 and $ 5,694,000 as of September 30, 2023 and September 30, 2022, respectively. For HTM debt securities, AIR totaled $ 1,013,000 and $ 1,108,000 as of September 30, 2023 and September 30, 2022, respectively. AIR is included in the “ interest receivable ” line item on the Company’s consolidated statements of financial condition. The following tables show the gross unrealized losses and fair value of securities as of September 30, 2023 and September 30, 2022, by length of time that individual securities in each category have been in a continuous loss position. There were 232 and 223 securities with an unrealized loss as of September 30, 2023 and September 30, 2022, respectively. The decline in fair value since purchase is attributable to changes in interest rates. Because the Company does not intend to sell these securities and does not consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be upon maturity, the Company does not consider these investments to be impaired. 79 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 September 30, 2023 Less than 12 months 12 months or more Total Unrealized Gross Losses Fair Value Unrealized Gross Losses Fair Value Unrealized Gross Losses Fair Value (In thousands) Available-for-sale securities Corporate debt securities $ — $ — $ ( 23,487 ) $ 167,452 $ ( 23,487 ) $ 167,452 Municipal bonds — — ( 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 September 30, 2022 Less than 12 months 12 months or more Total Unrealized Gross Losses Fair Value Unrealized Gross Losses Fair Value Unrealized Gross Losses Fair Value (In thousands) Available-for-sale securities Corporate debt securities $ ( 27,072 ) $ 288,753 $ — $ — $ ( 27,072 ) $ 288,753 Municipal bonds due ( 1,061 ) 14,561 — — ( 1,061 ) 14,561 U.S. government and agency securities ( 1,049 ) 39,354 — — ( 1,049 ) 39,354 Asset-backed securities ( 6,374 ) 601,248 ( 1,383 ) 50,070 ( 7,757 ) 651,318 Mortgage-backed securities ( 63,738 ) 833,683 ( 12,331 ) 53,533 ( 76,069 ) 887,216 ( 99,294 ) 1,777,599 ( 13,714 ) 103,603 ( 113,008 ) 1,881,202 Held-to-maturity securities Mortgage-backed securities ( 56,461 ) 405,166 — — ( 56,461 ) 405,166 $ ( 155,755 ) $ 2,182,765 $ ( 13,714 ) $ 103,603 $ ( 169,469 ) $ 2,286,368 Substantially all of the Company’s held-to-maturity debt securities are issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero credit loss. Therefore, the Company did not record an allowance for credit losses for these securities as of September 30, 2023 or September 30, 2022. The Company does not believe that the available-for-sale debt securities that were in an unrealized loss position have any credit loss impairment as of September 30, 2023 or September 30, 2022. The Company does not intend to sell the investment securities that were in an unrealized loss position and it is not more likely than not that the Company will be required to sell the investment securities before recovery of their amortized cost basis, which may be at maturity. Available-for-sale debt securities issued by U.S. government agencies or U.S. government-sponsored enterprises carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero credit loss. Corporate debt securities and municipal bonds are considered to have an issuer of high credit quality and the decline in fair value is due to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bonds approach maturity. 80 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 NOTE D - LOANS RECEIVABLE For a detailed discussion of loans and credit quality, including accounting policies and the CECL methodology used to estimate the allowance for credit losses, see Note A "Summary of Significant Accounting Policies" above. The Company's loans held for investment are divided into two portfolio segments, commercial loans and consumer loans, with each of those segments further split into loan classes for purposes of estimating the allowance for credit losses. The following table is a summary of loans receivable by loan portfolio segment and class. September 30, 2023 September 30, 2022 ($ in thousands) ($ in thousands) Gross loans by category Commercial loans Multi-family $ 2,907,086 14.8 % $ 2,645,801 13.7 % Commercial real estate 3,344,959 17.0 3,133,660 16.2 Commercial & industrial 2,321,717 11.8 2,350,984 12.1 Construction 3,318,994 16.9 3,784,388 19.5 Land - acquisition & development 201,538 1.1 291,301 1.5 Total commercial loans 12,094,294 61.6 12,206,134 63.0 Consumer loans Single-family residential 6,451,270 32.8 5,771,862 29.8 Construction - custom 672,643 3.4 974,652 5.0 Land - consumer lot loans 125,723 0.6 153,240 0.8 HELOC 234,410 1.2 203,528 1.0 Consumer 70,164 0.4 75,543 0.4 Total consumer loans 7,554,210 38.4 7,178,825 37.0 Total gross loans 19,648,504 100 % 19,384,959 100 % Less: Allowance for loan losses 177,207 172,808 Loans in process 1,895,940 3,006,023 Net deferred fees, costs and discounts 98,807 92,564 Total loan contra accounts 2,171,954 3,271,395 Net loans $ 17,476,550 $ 16,113,564 The Company elected to exclude AIR from the amortized cost basis of loans for disclosure purposes and from the calculations of estimated credit losses. As of September 30, 2023 and September 30, 2022, AIR for loans totaled $ 77,349,000 and $ 57,070,000 , respectively, and is included in the “ accrued interest receivable ” line item on the Company’s consolidated statements of financial condition. Loans in the amount of $ 8,941,201,000 and $ 8,224,951,000 at September 30, 2023 and September 30, 2022, respectively, were pledged to secure borrowings from the FHLB as part of our liquidity management strategy. The FHLB does not have the right to sell or re-pledge these loans. 81 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 The following summary breaks down the Company's fixed rate and adjustable rate loans by time to maturity or to rate adjustment. See Note G for details regarding fair value hedges of individual fixed rate commercial loans and also hedges of a specified portion of pools of prepayable fixed rate mortgage loans under the "last of layer" method. September 30, 2023 Fixed-Rate Adjustable-Rate Term To Maturity Loans % of Loans Term To Rate Adjustment Loans % of Loans (In thousands) (In thousands) Within 1 year $ 127,930 0.7 % Less than 1 year $ 5,380,534 30.5 % 1 to 3 years 578,007 3.3 1 to 3 years 658,830 3.7 3 to 5 years 996,370 5.6 3 to 5 years 370,919 2.1 5 to 10 years 3,075,769 17.4 5 to 10 years 124,216 0.7 10 to 20 years 468,223 2.7 10 to 20 years 328 — Over 20 years 5,871,624 33.3 Over 20 years 1,007 — $ 11,117,923 63.0 % $ 6,535,834 37.0 % The Company has granted loans to officers and directors of the Company and related interests. These loans are made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than the normal risk of collectability. The aggregate dollar amount of these loans, including unfunded commitments to lend, was $ 134,860,000 and $ 144,178,000 at September 30, 2023 and 2022, respectively. As of September 30, 2023, all of these loans were performing in accordance with contractual terms. The following table sets forth the amortized cost basis of loans receivable for non-accrual loans and loans 90 days or more past due and still accruing. September 30, 2023 September 30, 2022 (In thousands, except ratio data) Non-accrual Non-accrual with no ACL 90 days or more past due and accruing Non-accrual Non-accrual with no ACL 90 days or more past due and accruing Commercial loans Multi-family $ 5,127 $ — $ — $ 5,912 $ — $ — Commercial real estate 23,435 — — 4,691 — — Commercial & industrial 6,082 — — 5,693 1,308 — Construction — — — — — — Land - acquisition & development — — — — — — Total commercial loans 34,644 — — 16,296 1,308 — Consumer loans Single-family residential 14,918 — — 17,450 — — Construction - custom 88 — — 435 — — Land - consumer lot loans 9 — — 84 — — HELOC 736 — — 233 — — Consumer 27 — — 36 — — Total consumer loans 15,778 — — 18,238 — — Total loans $ 50,422 $ — $ — $ 34,534 $ 1,308 $ — % of total loans 0.29 % 0.21 % 82 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 The following tables break down loan delinquencies by loan portfolio segment and class. September 30, 2023 Days Delinquent Based on $ Amount of Loans % based on $ Loan type Loans Receivable (Amortized Cost) Current 30 60 90 Total Past Due ($ in thousands) Commercial loans Multi-Family $ 2,886,594 $ 2,886,462 $ — $ — $ 132 $ 132 — % Commercial Real Estate 3,310,101 3,285,673 848 145 23,435 24,428 0.74 Commercial & Industrial 2,315,318 2,307,020 30 2,186 6,082 8,298 0.36 Construction 1,838,936 1,838,936 — — — — — Land - Acquisition & Development 156,661 156,661 — — — — — Total commercial loans 10,507,610 10,474,752 878 2,331 29,649 32,858 0.31 Consumer loans Single-Family Residential 6,388,990 6,365,065 6,441 6,068 11,416 23,925 0.37 Construction - Custom 324,451 320,987 760 2,617 87 3,464 1.07 Land - Consumer Lot Loans 124,842 124,231 358 245 8 611 0.49 HELOC 237,754 235,708 1,050 314 682 2,046 0.86 Consumer 70,110 69,699 228 107 76 411 0.59 Total consumer loans 7,146,147 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 % September 30, 2022 Days Delinquent Based on $ Amount of Loans % based on $ Loan type Loans Receivable (Amortized Cost) Current 30 60 90 Total Past Due ($ in thousands) Commercial loans Multi-Family $ 2,626,479 $ 2,626,479 $ — $ — $ — $ — — % Commercial Real Estate 3,111,112 3,110,056 538 450 68 1,056 0.03 Commercial & Industrial 2,343,403 2,336,791 — 919 5,693 6,612 0.28 Construction 1,423,891 1,423,891 — — — — — Land - Acquisition & Development 223,616 223,616 — — — — — Total commercial loans 9,728,501 9,720,833 538 1,369 5,761 7,668 0.08 Consumer loans Single-Family Residential 5,726,979 5,708,996 2,796 1,316 13,871 17,983 0.31 Construction - Custom 397,343 396,908 — — 435 435 0.11 Land - Consumer Lot Loans 151,945 151,746 — 139 60 199 0.13 HELOC 206,033 205,605 155 46 227 428 0.21 Consumer 75,571 75,357 162 17 35 214 0.28 Total consumer loans 6,557,871 6,538,612 3,113 1,518 14,628 19,259 0.29 Total Loans $ 16,286,372 $ 16,259,445 $ 3,651 $ 2,887 $ 20,389 $ 26,927 0.17 % Delinquency % 99.83 % 0.02 % 0.02 % 0.13 % 0.17 % Most loans classified as TDRs are accruing and performing loans where the borrower has proactively approached the Company about modifications due to temporary financial difficulties. Each request is individually evaluated for merit and likelihood of success. The concession for these loans is typically a payment reduction through a rate reduction of 100 to 200 bps for a specific term, usually six to 12 months. Interest-only payments may also be approved during the modification period. Principal forgiveness is not an available option for restructured loans. As of September 30, 2023, the outstanding balance of TDRs was $ 46,117,000 as compared to $ 56,817,000 as of September 30, 2022. As of September 30, 2023, 97.9 % of the restructured loans were performing. Single-family 83 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 residential loans comprised 84.7 % of TDRs as of September 30, 2023. The Company's ACL methodology takes into account the following performance indicators for restructured loans: 1) time since modification, 2) current payment status and 3) geographic area. We evaluate the credit quality of our commercial loans based on regulatory risk ratings and also consider other factors. Based on this evaluation, the loans are assigned a grade and classified as follows: • Pass – the credit does not meet one of the definitions below. • Special mention – A special mention credit is considered to be currently protected from loss but is potentially weak. No loss of principal or interest is foreseen; however, proper supervision and management attention is required to deter further deterioration in the credit. Assets in this category constitute some undue and unwarranted credit risk but not to the point of justifying a risk rating of substandard. The credit risk may be relatively minor yet constitutes an unwarranted risk in light of the circumstances surrounding a specific asset. • Substandard – A substandard credit is an unacceptable credit. Additionally, repayment in the normal course is in jeopardy due to the existence of one or more well defined weaknesses. In these situations, loss of principal is likely if the weakness is not corrected. A substandard asset is inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Assets so classified will have a well-defined weakness or weaknesses that jeopardize the collection or liquidation of the debt. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets risk rated substandard. • Doubtful – A credit classified doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that the weakness makes collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The probability of loss is high, but because of certain important and reasonably specific pending factors that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and refinancing plans. • Loss – Credits classified loss are considered uncollectible and of such little value that their continuance as a bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this asset even though partial recovery may be affected in the future. Losses should be taken in the period in which they are identified as uncollectible. Partial charge-off versus full charge-off may be taken if the collateral offers some identifiable protection. 84 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 The following tables present by credit quality indicator, loan class, and year of origination, the amortized cost basis of loans receivable as of September 30, 2023 and September 30, 2022. September 30, 2023 Term Loans Amortized Cost Basis by Origination Year (In thousands) 2023 2022 2021 2020 2019 Prior to 2019 Revolving Loans Revolving to Term Loans Total 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 Substandard 499 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 Substandard 2,901 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 Substandard 3,400 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 85 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 September 30, 2023 Term Loans Amortized Cost Basis by Origination Year (In thousands) 2023 2022 2021 2020 2019 Prior to 2019 Revolving Loans Revolving to Term Loans Total 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 due 822 115 859 392 221 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 due 822 875 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 86 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 September 30, 2022 Term Loans Amortized Cost Basis by Origination Year (In thousands) 2022 2021 2020 2019 2018 Prior to 2018 Revolving Loans Revolving to Term Loans Total Loans Commercial loans Multi-family Pass $ 657,144 $ 778,936 $ 500,917 $ 168,568 $ 157,144 $ 315,858 $ 34,102 $ — $ 2,612,669 Substandard 3,951 — 1,729 — 6,560 1,570 — — 13,810 Total $ 661,095 $ 778,936 $ 502,646 $ 168,568 $ 163,704 $ 317,428 $ 34,102 $ — $ 2,626,479 Commercial real estate Pass $ 820,490 $ 679,321 $ 492,826 $ 301,033 $ 218,171 $ 541,008 $ 1,391 $ — $ 3,054,240 Special Mention — 1,594 — — — — — — 1,594 Substandard 259 — 6,074 30,579 4,857 10,923 2,586 — 55,278 Total $ 820,749 $ 680,915 $ 498,900 $ 331,612 $ 223,028 $ 551,931 $ 3,977 $ — $ 3,111,112 Commercial & industrial Pass $ 254,668 $ 435,630 $ 145,799 $ 39,102 $ 25,709 $ 197,909 $ 1,097,696 $ 255 $ 2,196,768 Special Mention 2,503 — — — — — 29,153 — 31,656 Substandard 2,021 12,639 9,803 5,029 1,213 25,519 58,755 — 114,979 Total $ 259,192 $ 448,269 $ 155,602 $ 44,131 $ 26,922 $ 223,428 $ 1,185,604 $ 255 $ 2,343,403 Construction Pass $ 510,764 $ 671,611 $ 142,816 $ 27,260 $ 375 $ — $ 68,808 $ — $ 1,421,634 Substandard — 2,257 — — — — — — 2,257 Total $ 510,764 $ 673,868 $ 142,816 $ 27,260 $ 375 $ — $ 68,808 $ — $ 1,423,891 Land - acquisition & development Pass $ 100,022 $ 64,539 $ 16,934 $ 3,391 $ 8,175 $ 27,955 $ 2,600 $ — $ 223,616 Total $ 100,022 $ 64,539 $ 16,934 $ 3,391 $ 8,175 $ 27,955 $ 2,600 $ — $ 223,616 Total commercial loans Pass $ 2,343,088 $ 2,630,037 $ 1,299,292 $ 539,354 $ 409,574 $ 1,082,730 $ 1,204,597 $ 255 $ 9,508,927 Special Mention 2,503 1,594 — — — — 29,153 — 33,250 Substandard 6,231 14,896 17,606 35,608 12,630 38,012 61,341 — 186,324 Total $ 2,351,822 $ 2,646,527 $ 1,316,898 $ 574,962 $ 422,204 $ 1,120,742 $ 1,295,091 $ 255 $ 9,728,501 87 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 September 30, 2022 Term Loans Amortized Cost Basis by Origination Year (In thousands) 2022 2021 2020 2019 2018 Prior to 2018 Revolving Loans Revolving to Term Loans Total Loans Consumer loans Single-family residential Current $ 1,131,152 $ 1,652,242 $ 771,769 $ 320,546 $ 276,093 $ 1,557,194 $ — $ — $ 5,708,996 30 days past due — — 400 604 — 1,792 — — 2,796 60 days past due — — — — — 1,316 — — 1,316 90+ days past due — — — 477 — 13,394 — — 13,871 Total $ 1,131,152 $ 1,652,242 $ 772,169 $ 321,627 $ 276,093 $ 1,573,696 $ — $ — $ 5,726,979 Construction - custom Current $ 235,030 $ 150,434 $ 9,811 $ 1,155 $ 478 $ — $ — $ — $ 396,908 90+ days past due — 435 — — — — — — 435 Total $ 235,030 $ 150,869 $ 9,811 $ 1,155 $ 478 $ — $ — $ — $ 397,343 Land - consumer lot loans Current $ 53,396 $ 60,454 $ 15,876 $ 5,399 $ 3,433 $ 13,188 $ — $ — $ 151,746 60 days past due — — 139 — — — — — 139 90+ days past due — — — — — 60 — — 60 Total $ 53,396 $ 60,454 $ 16,015 $ 5,399 $ 3,433 $ 13,248 $ — $ — $ 151,945 HELOC Current $ — $ — $ — $ — $ — $ 4,349 $ 200,267 $ 989 $ 205,605 30 days past due — — — — — 95 60 — 155 60 days past due — — — — — 29 17 — 46 90+ days past due — — — — — — 227 — 227 Total $ — $ — $ — $ — $ — $ 4,473 $ 200,571 $ 989 $ 206,033 Consumer Current $ 1,386 $ 10,156 $ 8,038 $ 215 $ 23,919 $ 6,449 $ 25,194 $ — $ 75,357 30 days past due — — — 2 — 153 7 — 162 60 days past due — — — — — 17 — — 17 90+ days past due 1 — — 32 — 2 — — 35 Total $ 1,387 $ 10,156 $ 8,038 $ 249 $ 23,919 $ 6,621 $ 25,201 $ — $ 75,571 Total consumer loans Current $ 1,420,964 $ 1,873,286 $ 805,494 $ 327,315 $ 303,923 $ 1,581,180 $ 225,461 $ 989 $ 6,538,612 30 days past due — — 400 606 — 2,040 67 — 3,113 60 days past due — — 139 — — 1,362 17 — 1,518 90+ days past due 1 435 — 509 — 13,456 227 — 14,628 Total $ 1,420,965 $ 1,873,721 $ 806,033 $ 328,430 $ 303,923 $ 1,598,038 $ 225,772 $ 989 $ 6,557,871 88 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 NOTE E - ALLOWANCE FOR LOAN LOSSES 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. Twelve Months Ended September 30, 2023 Beginning Allowance Charge-offs Recoveries Provision & Transfers Ending Allowance (In thousands) Commercial loans Multi-family $ 12,013 $ — $ — $ 1,142 $ 13,155 Commercial real estate 25,814 — 103 2,925 28,842 Commercial & industrial 57,210 ( 45,856 ) 93 47,326 58,773 Construction 26,161 — — 3,247 29,408 Land - acquisition & development 12,278 — 78 ( 5,340 ) 7,016 Total commercial loans 133,476 ( 45,856 ) 274 49,300 137,194 Consumer loans Single-family residential 25,518 ( 34 ) 568 1,977 28,029 Construction - custom 3,410 — — ( 629 ) 2,781 Land - consumer lot loans 5,047 — 23 ( 1,558 ) 3,512 HELOC 2,482 — 2 375 2,859 Consumer 2,875 ( 580 ) 502 35 2,832 Total consumer loans 39,332 ( 614 ) 1,095 200 40,013 $ 172,808 $ ( 46,470 ) $ 1,369 $ 49,500 $ 177,207 Twelve Months Ended September 30, 2022 Beginning Allowance Charge-offs Recoveries Provision & Transfers Ending Allowance (In thousands) Commercial loans Multi-family $ 16,949 $ — $ — $ ( 4,936 ) $ 12,013 Commercial real estate 23,437 ( 529 ) 984 1,922 $ 25,814 Commercial & industrial 45,957 ( 1,202 ) 73 12,382 $ 57,210 Construction 25,585 — 2,179 ( 1,603 ) $ 26,161 Land - acquisition & development 13,447 ( 11 ) 70 ( 1,228 ) $ 12,278 Total commercial loans 125,375 ( 1,742 ) 3,306 6,537 133,476 Consumer loans Single-family residential 30,978 — 1,002 ( 6,462 ) 25,518 Construction - custom 4,907 — — ( 1,497 ) 3,410 Land - consumer lot loans 4,939 ( 27 ) 48 87 5,047 HELOC 2,390 — 351 ( 259 ) 2,482 Consumer 2,711 ( 370 ) 940 ( 406 ) 2,875 Total consumer loans 45,925 ( 397 ) 2,341 ( 8,537 ) 39,332 $ 171,300 $ ( 2,139 ) $ 5,647 $ ( 2,000 ) $ 172,808 89 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 The Company recorded a provision for credit losses of $ 41,500,000 in 2023, compared to a provision of $ 3,000,000 for 2022. In 2023, provisioning was largely due to adjustments for one large charge-off taken, offset by reduced unfunded commitment balances. For the year ended September 30, 2023, net charge-offs were $ 45,101,000 , compared to recoveries of $ 3,508,000 in the prior year. 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 its contractual obligations. Non-accrual loans increased to $ 50,422,000 as of September 30, 2023, from $ 34,534,000 as of September 30, 2022. Non-performing assets totaled $ 57,924,000 , or 0.26 % of total assets, at September 30, 2023, compared to $ 44,554,000 , or 0.21 % of total assets, as of September 30, 2022. As of September 30, 2023, the allowance for loan losses of $ 177,207,000 is for loans that are evaluated on a pooled basis, which was comprised of $ 107,049,000 related to the quantitative component and $ 70,158,000 related to management's qualitative overlays (including the forecast component of the reserve). 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). September 30, 2023 Internally Assigned Grade Pass Special mention Substandard Doubtful Loss Total (In thousands) Loan type Commercial loans Multi-family $ 2,772,538 $ 90,428 $ 23,628 $ — $ — $ 2,886,594 Commercial real estate 3,207,596 4,847 97,658 — — 3,310,101 Commercial & industrial 2,164,876 6,647 143,795 — — 2,315,318 Construction 1,818,266 — 20,670 — — 1,838,936 Land - acquisition & development 156,390 — 271 — — 156,661 Total commercial loans 10,119,666 101,922 286,022 — — 10,507,610 Consumer loans Single-family residential 6,370,936 — 18,054 — — 6,388,990 Construction - custom 324,363 — 88 — — 324,451 Land - consumer lot loans 124,588 — 254 — — 124,842 HELOC 237,018 — 736 — — 237,754 Consumer 70,098 — 12 — — 70,110 Total consumer loans 7,127,003 — 19,144 — — 7,146,147 Total loans $ 17,246,669 $ 101,922 $ 305,166 $ — $ — $ 17,653,757 Total grade as a % of total loans 97.7 % 0.6 % 1.7 % — % — % 90 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 September 30, 2022 Internally Assigned Grade Pass Special mention Substandard Doubtful Loss Total Gross Loans (In thousands) Loan type Commercial loans Multi-family $ 2,612,669 $ — $ 13,810 $ — $ — $ 2,626,479 Commercial real estate 3,054,241 1,594 55,277 — — 3,111,112 Commercial & industrial 2,196,767 31,656 114,980 — — 2,343,403 Construction 1,421,634 — 2,257 — — 1,423,891 Land - acquisition & development 223,616 — — — — 223,616 Total commercial loans 9,508,927 33,250 186,324 — — 9,728,501 Consumer loans Single-family residential 5,706,199 — 20,780 — — 5,726,979 Construction - custom 396,908 — 435 — — 397,343 Land - consumer lot loans 151,723 — 222 — — 151,945 HELOC 205,800 — 233 — — 206,033 Consumer 75,570 — 1 — — 75,571 Total consumer loans 6,536,200 — 21,671 — — 6,557,871 Total gross loans $ 16,045,127 $ 33,250 $ 207,995 $ — $ — $ 16,286,372 Total grade as a % of total gross loans 98.5 % 0.2 % 1.3 % — % — % 91 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 The following tables provide information on amortized cost of loans receivable based on borrower payment activity. September 30, 2023 Performing Loans Non-Performing Loans Amount % of Total Loans Amount % of Total Loans (In thousands) (In thousands) Commercial loans Multi-family $ 2,881,467 99.8 % $ 5,127 0.2 % Commercial real estate 3,286,666 99.3 23,435 0.7 Commercial & industrial 2,309,236 99.7 6,082 0.3 Construction 1,838,936 100.0 — — Land - acquisition & development 156,661 100.0 — — Total commercial loans 10,472,966 99.7 34,644 0.3 Consumer loans Single-family residential 6,374,072 99.8 14,918 0.2 Construction - custom 324,363 100.0 88 — Land - consumer lot loans 124,833 100.0 9 — HELOC 237,018 99.7 736 0.3 Consumer 70,083 100.0 27 — Total consumer loans 7,130,369 99.8 15,778 0.2 Total $ 17,603,335 99.7 % $ 50,422 0.3 % September 30, 2022 Performing Loans Non-Performing Loans Amount % of Total Loans Amount % of Total Loans (In thousands) (In thousands) Commercial loans Multi-family $ 2,620,567 99.8 % $ 5,912 0.2 % Commercial real estate 3,106,421 99.8 4,691 0.2 Commercial & industrial 2,337,710 99.8 5,693 0.2 Construction 1,423,891 100.0 — — Land - acquisition & development 223,616 100.0 — — Total commercial loans 9,712,205 99.8 16,296 0.2 Consumer loans Single-family residential 5,709,529 99.7 17,450 0.3 Construction - custom 396,908 99.9 435 0.1 Land - consumer lot loans 151,861 99.9 84 0.1 HELOC 205,800 99.9 233 0.1 Consumer 75,535 100.0 36 — Total consumer loans 6,539,633 99.7 18,238 0.3 Total gross loans $ 16,251,838 99.8 % $ 34,534 0.2 % 92 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 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 which 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 investment 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, including the Company's equity securities, 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 counterparty to offset its interest rate risk. The Company has also entered various forms of fair value hedges and cash flow 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. 93 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 The following tables present the balance and level in the fair value hierarchy for assets and liabilities that are measured at fair value on a recurring basis (with the exception of those measured using the NAV practical expedient). September 30, 2023 Level 1 Level 2 Level 3 Total (In thousands) 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 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 September 30, 2022 Level 1 Level 2 Level 3 Total (In thousands) Available-for-sale securities U.S. government and agency securities $ — $ 39,354 $ — $ 39,354 Asset-backed securities — 767,001 — 767,001 Municipal bonds — 34,962 — 34,962 Corporate debt securities — 313,757 — 313,757 Mortgage-backed securities Agency pass-through certificates — 895,963 — 895,963 Total Available-for-sale securities — 2,051,037 — 2,051,037 Client swap program hedges — 67,260 — 67,260 Commercial loan fair value hedges — 2,517 — 2,517 Mortgage loan fair value hedge — 36,765 — 36,765 Borrowings cash flow hedges — 179,945 — 179,945 Total Financial Assets $ — $ 2,337,524 $ — $ 2,337,524 Financial Liabilities Client swap program hedges $ — $ 67,260 $ — $ 67,260 Total Financial Liabilities $ — $ 67,260 $ — $ 67,260 94 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 There were no transfers between, into and/or out of Level 1, 2 or 3 during the year ended September 30, 2023 or September 30, 2022. 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 includes 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 for the periods presented, 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. September 30, 2023 Twelve Months Ended September 30, 2023 Level 1 Level 2 Level 3 Total Total Gains (Losses) (In thousands) Loans receivable (1) $ — $ — $ 35,627 $ 35,627 $ ( 46,079 ) Real estate owned (2) — — 3,857 3,857 ( 181 ) Balance at end of period $ — $ — $ 39,484 $ 39,484 $ ( 46,260 ) (1) The gains (losses) represent re-measurements of collateral-dependent impaired loans. (2) The gains (losses) represent aggregate write-downs and charge-offs on real estate owned. September 30, 2022 Twelve Months Ended September 30, 2022 Level 1 Level 2 Level 3 Total Total Gains (Losses) (In thousands) Impaired loans (1) $ — $ — $ 7,912 $ 7,912 $ ( 1,286 ) Real estate owned (2) — — 3,128 3,128 ( 367 ) Balance at end of period $ — $ — $ 11,040 $ 11,040 $ ( 1,653 ) (1) The gains (losses) represent re-measurements of collateral-dependent impaired loans. (2) The gains (losses) represent aggregate write-downs and charge-offs on real estate owned. At September 30, 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 $ 1,756,000 . 95 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 Fair Values of Financial Instruments U. S. GAAP 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. September 30, 2023 September 30, 2022 Level Carrying Amount Estimated Fair Value Carrying Amount Estimated Fair Value (In thousands) Financial assets Cash and cash equivalents 1 $ 980,649 $ 980,649 $ 683,965 $ 683,965 Available-for-sale securities: U.S. government and agency securities 2 217,053 217,053 39,354 39,354 Asset-backed securities 2 588,016 588,016 767,001 767,001 Municipal bonds 2 34,662 34,662 34,962 34,962 Corporate debt securities 2 242,522 242,522 313,757 313,757 Mortgage-backed securities Agency pass-through certificates 2 912,844 912,844 895,963 895,963 Total available-for-sale securities 1,995,097 1,995,097 2,051,037 2,051,037 Held-to-maturity securities: Mortgage-backed securities Agency pass-through certificates 2 423,586 355,188 463,299 406,860 Total held-to-maturity securities 423,586 355,188 463,299 406,860 Loans receivable 3 17,476,550 16,559,758 16,113,564 15,417,635 FHLB stock 2 126,820 126,820 95,073 95,073 Other assets - client swap program hedges 2 78,797 78,797 67,260 67,260 Other assets - commercial loan fair value hedges 2 3,405 3,405 2,517 2,517 Other assets - mortgage loan fair value hedges 2 46,396 46,396 36,765 36,765 Other assets - borrowings cash flow hedges 2 184,373 184,373 179,945 179,945 Financial liabilities Time deposits 2 5,305,016 5,232,689 3,338,043 3,249,169 Borrowings 2 3,650,000 3,653,229 2,125,000 1,940,813 Other liabilities - client swap program hedges 2 79,668 79,668 67,260 67,260 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 which are exchange traded are considered a Level 1 input method. 96 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 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 commensurate with risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market information and specific borrower information. FHLB and FRB stock – The fair value is based upon the par value of the stock which equates to its carrying value. Time deposits – The fair value of fixed-maturity time deposits is estimated by discounting the estimated future cash flows using the rates currently 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 Bank 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 interest rate swaps are estimated by a third-party pricing service using a discounted cash flow technique. 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 September 30, 2023 and September 30, 2022. September 30, 2023 Derivative Assets Derivative Liabilities Interest rate contract purpose Balance Sheet Location Notional Fair Value Balance Sheet Location Notional Fair Value (In thousands) (In thousands) Client swap program hedges Other assets $ 806,744 $ 78,797 Other liabilities $ 806,744 $ 79,668 Commercial loan fair value hedges Other assets 39,661 3,405 Other liabilities — — Mortgage loan fair value hedges Other assets 670,000 46,396 Other liabilities — — Borrowings cash flow hedges Other assets 1,000,000 184,373 Other liabilities — — $ 2,516,405 $ 312,971 $ 806,744 $ 79,668 September 30, 2022 Derivative Assets Derivative Liabilities Interest rate contract purpose Balance Sheet Location Notional Fair Value Balance Sheet Location Notional Fair Value (In thousands) (In thousands) Client swap program hedges Other assets $ 588,676 $ 67,260 Other liabilities $ 588,676 $ 67,260 Commercial loan fair value hedges Other assets 42,209 2,517 Other liabilities — — Mortgage loan fair value hedges Other assets 470,000 36,765 Other liabilities — — Borrowings cash flow hedges Other assets 1,000,000 179,945 Other liabilities — — $ 2,100,885 $ 286,487 $ 588,676 $ 67,260 97 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 The Company enters into interest rate swaps to hedge interest rate risk. These arrangements include hedges of individual fixed rate commercial loans and also hedges of a specified portion of pools of prepayable fixed rate mortgage loans under the "last of layer" method. These relationships qualify as fair value hedges under FASB ASC 815, Derivatives and Hedging ("ASC 815"), which provides for offsetting of the recognition of gains and losses of the respective interest rate swap and the hedged items. Gains and losses on interest rate swaps designated in these hedge relationships, along with the offsetting gains and losses on the hedged items attributable to the hedged risk, are recognized in current earnings within the same income statement line item. Upon electing to apply ASC 815 fair value hedge accounting, the carrying value of the hedged items are adjusted to reflect the cumulative impact of changes in fair value attributable to the hedged risk. The hedge basis adjustment remains with each hedged item until the hedged item is de-recognized from the balance sheet. The following tables presents the impact of fair value hedge accounting on the carrying value of the hedged items at September 30, 2023 and September 30, 2022. (In thousands) September 30, 2023 Balance sheet line item in which hedged item is recorded Carrying value of hedged items Cumulative gain (loss) fair value hedge adjustment included in carrying amount of hedged items Loans receivable (1) (2) $ 1,816,870 $ ( 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 ). (In thousands) September 30, 2022 Balance sheet line item in which hedged item is recorded Carrying value of hedged items Cumulative gain (loss) fair value hedge adjustment included in carrying amount of hedged items Loans receivable (1) (2) $ 1,159,496 $ ( 39,090 ) $ 1,159,496 $ ( 39,090 ) (1) Includes the amortized cost basis of the closed mortgage loan portfolios used to designate the hedging relationships in which the hedged items are the last layer expected to be remaining at the end of the hedging relationships. At September 30, 2022, the amortized cost basis of the closed loan portfolios used in the hedging relationships was $ 1,119,975,000 , the cumulative basis adjustment associated with the hedging relationships was $( 36,458,000 ), and the amount of the designated hedged items was $ 470,000,000 . (2) Includes the amortized cost basis of commercial loans designated in fair value hedging relationships. At September 30, 2022, the amortized cost basis of the hedged commercial loans was $ 39,521,000 and the cumulative basis adjustment associated with the hedging relationships was $( 2,632,000 ). The Company has entered into interest rate swaps to convert certain short-term borrowings to fixed rate payments. The primary purpose of these hedges is to mitigate the risk of changes in future cash flows resulting from increasing interest rates. For qualifying cash flow hedges under ASC 815, gains and losses on the interest rate swaps are recorded in accumulated other comprehensive income ("AOCI") and then reclassified into earnings in the same period the hedged cash flows affect earnings and within the same 98 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 income statement line item as the hedged cash flows. As of September 30, 2023, the maturities for hedges of adjustable rate borrowings ranged from less than one year to seven years , with the weighted average being 5.5 years. The following table presents the impact of derivative instruments (cash flow hedges on borrowings) on AOCI for the periods presented. (In thousands) Twelve Months Ended September 30, Amount of gain/(loss) recognized in AOCI on derivatives in cash flow hedging relationships 2023 2022 Interest rate contracts: Pay fixed/receive floating swaps on cash flow hedges of borrowings $ 4,428 $ 137,502 Total pre-tax gain/(loss) recognized in AOCI $ 4,428 $ 137,502 The following table presents the gains/(losses) on derivative instruments in fair value and cash flow accounting hedging relationships under ASC 815 for the period presented. Twelve Months Ended September 30, 2023 Twelve Months Ended September 30, 2022 Interest income on loans receivable Interest expense on FHLB advances Interest income on loans receivable Interest expense on FHLB advances (In thousands) (In thousands) Interest income/(expense), including the effects of fair value and cash flow hedges $ 900,068 $ ( 115,488 ) $ 601,592 $ ( 28,729 ) Gain/(loss) on fair value hedging relationships: Interest rate contracts Amounts related to interest settlements on derivatives $ 16,975 $ ( 1,782 ) Recognized on derivatives 10,519 43,100 Recognized on hedged items ( 9,775 ) ( 43,305 ) Net income/(expense) recognized on fair value hedges $ 17,719 $ ( 1,987 ) Gain/(loss) on cash flow hedging relationships: Interest rate contracts Amounts related to interest settlements on derivatives $ 38,709 $ ( 408 ) Amount of derivative gain/(loss) reclassified from AOCI into interest income/expense — — Net income/(expense) recognized on cash flow hedges $ 38,709 $ ( 408 ) 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 net impact to the statement of operations for the year ended September 30, 2023 was a decrease in other income of $ 870,000 . There was no net income to the statement of operations for the year ended September 30, 2022 as the changes in fair value of the receive fixed swap and pay fixed swap offset each other. As of September 30, 2023, none of the outstanding notional balance is associated with related party loans. 99 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 The following table presents the impact of derivative instruments (client swap program) that are not designated in accounting hedges under ASC 815 for the periods presented. (In thousands) Twelve Months Ended September 30, Derivative instruments Classification of gain/(loss) recognized in income on derivative instrument 2023 2022 Interest rate contracts: Pay fixed/receive floating swap Other noninterest income $ 11,544 $ 78,244 Receive fixed/pay floating swap Other noninterest income ( 12,414 ) ( 78,244 ) $ ( 870 ) $ — NOTE H – REVENUE FROM CONTRACTS WITH CUSTOMERS Net interest income on financial assets and liabilities is excluded from the scope of ASU No. 2014-09, Revenue from Contracts with Customers ("ASC 606") thus a significant majority of our revenues are not subject to the referenced guidance. Revenue streams that are within the scope of the guidance are presented within noninterest 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 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. For fiscal years ended 2023 and 2022, in scope revenue streams represented approximately 3.9 % and 5.6 % of our total revenues, respectively. As this standard is immaterial to our consolidated financial statements, the Company has omitted certain disclosures in ASC 606, including the disaggregation of revenue table. Sources of noninterest 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 cashiers' 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 and credit card payment networks 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 networks in this case). Insurance agency commissions (recognized in Other Income) : WAFD Insurance Group, Inc. is a wholly-owned subsidiary of the 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. 100 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 NOTE I - INTEREST RECEIVABLE The following table provides a summary of interest receivable by interest-earning asset type. September 30, 2023 September 30, 2022 (In thousands) Loans receivable $ 77,349 $ 57,070 Mortgage-backed securities 3,431 3,313 Investment securities 6,223 3,489 $ 87,003 $ 63,872 NOTE J - PREMISES AND EQUIPMENT The following table provides a summary of premises and equipment by asset type. September 30, 2023 September 30, 2022 Estimated Useful Life (In thousands) Land — $ 90,726 $ 92,938 Buildings 10 - 40 190,707 185,573 Leasehold improvements 5 - 15 18,081 18,361 Furniture, software and equipment 2 - 10 92,765 92,164 392,279 389,036 Less accumulated depreciation and amortization ( 155,268 ) ( 145,974 ) $ 237,011 $ 243,062 NOTE K - CUSTOMER ACCOUNTS The following tables provide the composition of the Company's customer accounts, including time deposits. September 30, 2023 September 30, 2022 Deposit Account Balance As a % of Total Deposits Weighted Average Rate Deposit Account Balance As a % of Total Deposits Weighted Average Rate ($ in thousands) Non-interest checking $ 2,706,448 16.8 % — % $ 3,266,734 20.4 % — % Interest checking 3,882,715 24.2 2.28 3,497,795 21.8 0.90 Savings 817,547 5.1 0.21 1,059,093 6.6 0.13 Money market 3,358,603 20.9 1.48 4,867,905 30.4 0.49 Time deposits 5,305,016 33.0 3.77 3,338,043 20.8 0.74 Total $ 16,070,329 100 % 2.12 % $ 16,029,570 100 % 0.51 % 101 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 Time deposits by rate band are as follows: September 30, 2023 September 30, 2022 (In thousands) Less than 1.00% $ 139,525 $ 2,705,212 1.00% to 1.99% 64,262 304,702 2.00% to 2.99% 248,973 327,852 3.00% to 3.99% 3,884,337 277 4.00% to 4.99% 532,153 — 5.00% and higher 435,766 — $ 5,305,016 $ 3,338,043 Time deposits by maturity band are as follows: September 30, 2023 September 30, 2022 (In thousands) Three months or less $ 2,383,793 $ 1,007,735 Over 3 through 6 months 1,517,379 966,800 Over 6 through 12 months 732,141 810,680 Over 12 months 671,703 552,828 $ 5,305,016 $ 3,338,043 Customer accounts with uninsured or uncollateralized deposits totaled $ 4,124,355,000 as of September 30, 2023, compared to $ 4,856,148,927 as of September 30, 2022. Interest expense on customer accounts consisted of the following: Year ended September 30, 2023 2022 2021 (In thousands) Checking accounts $ 70,396 $ 10,086 $ 5,545 Savings accounts 1,715 1,377 1,143 Money market accounts 47,485 12,423 8,723 Time deposit accounts 119,255 19,422 27,100 238,851 43,308 42,511 Less early withdrawal penalties ( 1,618 ) ( 267 ) ( 198 ) $ 237,233 $ 43,041 $ 42,313 Weighted average interest rate at end of year 2.12 % 0.51 % 0.23 % Daily weighted average interest rate during the year 1.84 % 0.34 % 0.35 % NOTE L - BORROWINGS The Company had total borrowings outstanding at September 30, 2023 with carrying values of $ 3,650,000,000 compared to $ 2,125,000,000 at September 30, 2022. The borrowings consisted of FHLB advances and funds received from the FRB's Bank Term Funding Program. The table below shows the contractual maturity dates of outstanding FHLB advances. September 30, 2023 September 30, 2022 (In thousands) Within 1 year $ 2,900,000 $ 2,025,000 1 to 3 years — 100,000 $ 2,900,000 $ 2,125,000 102 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 As of September 30, 2023, there are no advances that are callable by the FHLB. Taking into account cash flow hedges, the weighted average effective maturity of FHLB advances at September 30, 2023 is 2.01 years. Financial information pertaining to the weighted-average cost and the amount of FHLB advances were as follows. 2023 2022 2021 ($ in thousands) Weighted average interest rate, including cash flow hedges, at end of year 3.83 % 2.02 % 1.51 % Weighted daily average interest rate, including cash flow hedges, during the year 3.42 % 1.66 % 1.98 % Daily average of FHLB advances during the year $ 2,916,849 $ 1,731,110 $ 2,234,027 Maximum amount of FHLB advances at any month end $ 3,425,000 $ 2,125,000 $ 2,700,000 Interest expense during the year (including swap interest income and expense) $ 99,631 $ 28,729 $ 44,188 The Bank has a credit line with the FHLB equal to 45 % of total assets, subject to collateral requirements. The Bank has entered into borrowing agreements with the FHLB to borrow funds under a short-term floating rate cash management advance program and a 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. During fiscal 2023, the Company borrowed $ 750,000,000 from the FRB's BTFP. This program offers up to 1 year fixed-rate term borrowings that are prepayable without penalty. These borrowings are not callable by the FRB and have contractual maturity dates within 1 year. 103 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 NOTE M - COMMITMENTS AND CONTINGENCIES Lease Commitments - The Company’s lease commitments consist primarily of real estate property for branches and office space under various non-cancellable operating leases that expire between 2023 and 2070. The majority of the leases contain renewal options and provisions for increases in rental rates based on a predetermined schedule or an agreed upon index. If, at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the right-of-use asset and lease liability. Operating lease liabilities and right-of-use assets are recognized on the lease commencement date based on the present value of the future minimum lease payments over the lease term. The future lease payments are discounted at a rate that represents the Company's collateralized borrowing rate for financing instruments of a similar term and are included in Accrued expenses and other liabilities . The related right-of-use asset is included in Other assets . The table below presents the Company’s operating lease right-of-use asset and the related lease liability. (In thousands) September 30, 2023 September 30, 2022 Operating lease asset $ 21,126 $ 25,546 Operating lease liability $ 23,422 $ 27,974 As of September 30, 2023, the Company’s operating leases have a weighted average remaining lease term of 8.5 years and a weighted average discount rate of 2.27 %. Cash paid for amounts included in the measurement of the above operating lease liability was $ 6,418,000 and $ 6,788,000 for the twelve months ended September 30, 2023 and 2022, respectively. Right-of-use assets obtained in exchange for new operating lease liabilities during the twelve months ended September 30, 2023 and 2022 were $ 2,349,000 and $ 3,611,000 . The following table presents the components of net lease costs, a component of Occupancy expense. The Company elected not to separate lease and non-lease components and instead account for them as a single lease component. Variable lease costs include subsequent increases in index-based rents and variable payments such as common area maintenance. (In thousands) Twelve Months Ended September 30, Twelve Months Ended September 30, 2023 2022 Operating lease cost $ 6,424 $ 6,654 Variable lease cost 1,262 1,537 Sublease income ( 369 ) ( 358 ) Net lease cost $ 7,317 $ 7,833 The following table shows future minimum payments for operating leases as of September 30, 2023 for the respective periods. 104 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 (In thousands) Year ending September 30, 2024 $ 5,861 2025 4,863 2026 3,905 2027 3,040 2028 1,841 Thereafter 6,424 Total minimum payments 25,934 Amounts representing interest ( 2,512 ) Present value of minimum lease payments $ 23,422 Rental expense, including amounts paid under month-to-month cancelable leases, amounted to $ 7,686,000 and $ 8,191,000 in 2023, and 2022, respectively. Financial Instruments with Off-Balance Sheet Risk - The only material off-balance-sheet credit exposures are loans in process and unused lines of credit, which had a combined balance of $ 3,625,333,000 and $ 4,947,570,000 at September 30, 2023 and September 30, 2022, respectively. The reserve for unfunded commitments was $ 24,500,000 as of September 30, 2023, which is a decrease from $ 32,500,000 at September 30, 2022. See Note A "Summary of Significant Accounting Policies" for details regarding the reserve methodology. Legal Proceedings - The Company and its subsidiaries are from time to time defendants in and are threatened with various legal proceedings arising from regular business activities. Management, after consulting with legal counsel, is of the opinion that the ultimate liability, if any, resulting from these pending or threatened actions and proceedings will not have a material effect on the financial statements of the Company. 105 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 NOTE N - INCOME TAXES Under generally accepted accounting principles, the Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates applicable to taxable income in the years in which those temporary differences are expected to reverse. The table below provides a summary of the Company's tax assets and liabilities, including deferred tax assets and deferred tax liabilities by major source. Deferred tax balances represent temporary differences between the financial statement and corresponding tax treatment of income, gains, losses, deductions or credits. September 30, 2023 September 30, 2022 (In thousands) Deferred tax assets Allowance for credit losses $ 46,191 $ 47,426 REO reserves 300 329 Non-accrual loan interest 1,797 1,104 Deferred compensation 2,901 6,841 Stock based compensation 3,089 2,636 Lease liability 5,367 6,207 Other 2,804 1,329 Total deferred tax assets 62,449 65,872 Deferred tax liabilities FHLB stock dividends 9,741 9,826 Valuation adjustment on available-for-sale securities and cash flow hedges 13,933 15,765 Loan origination fees and costs 11,471 10,918 Premises and equipment 18,155 20,132 Lease right-of-use assets 4,841 5,992 Equity investments 4,244 5,323 Acquired intangibles 4,798 4,116 Other 483 25 Total deferred tax liabilities 67,666 72,097 Net deferred tax asset (liability) ( 5,217 ) ( 6,225 ) Current tax asset (liability) 13,696 2,920 Net tax asset (liability) $ 8,479 $ ( 3,305 ) 106 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 The table below presents a reconciliation of the statutory federal income tax rate to the Company's effective income tax rate. Year ended September 30, 2023 2022 2021 Statutory income tax rate 21 % 21 % 21 % State income tax 2 2 2 Other differences ( 2 ) ( 2 ) ( 2 ) Effective income tax rate 21 % 21 % 21 % The following table summarizes the Company's income tax expense (benefit) for the respective periods. Year ended September 30, 2023 2022 2021 (In thousands) Federal: Current $ 58,667 $ 50,854 $ 53,820 Deferred 3,334 7,187 ( 8,468 ) 62,001 58,041 45,352 State: Current 4,425 6,600 5,584 Deferred 1,224 ( 934 ) ( 1,413 ) 5,649 5,666 4,171 Total Current 63,092 57,454 59,404 Deferred 4,558 6,253 ( 9,881 ) $ 67,650 $ 63,707 $ 49,523 Based on current information, the Company does not expect that changes in the amount of unrecognized tax benefits over the next 12 months will have a significant impact on its results of operations or financial position. The Company does not have a liability for uncertain tax positions as of September 30, 2023 or September 30, 2022. The Company's federal income tax returns are open and subject to potential examination by the IRS for fiscal years 2020 and later. State income tax returns are generally subject to examination for a period of three to five years after filing. The state impact of any federal changes remains subject to examination by various states for a period of up to two years after formal notification to the states. NOTE O - EMPLOYEE BENEFIT PLANS 401(k) Plan - The Company maintains a 401(k) Plan (the "Plan") for the benefit of its employees. Company contributions are made annually as approved by the Board of Directors. Such amounts are not in excess of amounts permitted by the Employee Retirement Income Security Act of 1974. Plan participants may make voluntary after-tax contributions of their considered earnings as defined by the Plan. In addition, participants may make pre-tax contributions up to the statutory limits through the 401(k) provisions of the Plan. The annual addition from contributions to an individual participant's account in this Plan cannot exceed the lesser of 100 % of base salary or $ 66,000 . 107 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 New employees become eligible to participate in the Plan and make employee contributions on the first day of the calendar month following the completion of 30 days of employment. Such eligible employees do not become eligible for profit sharing or matching contributions until the first day of the quarter (January 1, April 1, July 1 or October 1) following completion of 1 year of service. A “year of service” is defined as a 12-month period in which the eligible employee works at least 1,000 hours of service and the first eligibility service period starts on the first day of employment. The Plan provides for a guaranteed safe harbor matching contribution equal to 100 % of the first 4 % of compensation that employees contribute to their account and this amount is immediately vested. The safe harbor match is not subject to the six year vesting schedule of the profit sharing contribution. This provides plan participants more investment flexibility. Additionally, the Company anticipates that all eligible employees, regardless of personal plan participation, will continue to receive an annual discretionary profit sharing contribution from the Company. Company contributions to the Plan amounted to $ 8,648,000 , $ 10,559,000 and $ 9,905,000 for the years ended 2023, 2022 and 2021, respectively. Employee Stock Purchase Plan - Upon approval by common shareholders, the Company implemented an Employee Stock Purchase Plan ("ESPP") in 2023 in which substantially all employees of the Company are eligible to participate. The ESPP provides participants the opportunity to purchase common stock of the Company at 95 % of the closing stock price on the last day of the purchase period. Purchase periods are three-month periods that are set as January 1 through March 31, April 1 through June 30, July 1 through September 30, and October 1 through December 31 of each year. A total of 500,000 shares were made available for issuance. Participants of the ESPP purchased 7,027 shares for $ 177,021 during 2023. At September 30, 2023 there were 492,973 shares remaining for purchase under the ESPP. Supplemental Executive Retirement Plan - Also approved by our shareholders, the Company implemented a Supplemental Executive Retirement Plan ("SERP") during 2023. This non-qualified deferred compensation plan provides retirement benefits to certain highly compensated executives. The SERP credits, if vested, will be distributed in the form of WaFd, Inc. common stock, in ten ( 10 ) substantially equal annual installments, following retirement of the executive officer. $ 11,700,000 in common stock units, and related dividend equivalents, were authorized with each unit having a value equal to one share of WaFd, Inc. common stock. These units will vest based on the age of each participant as follows: Attained Age Vested Percentage Before 62 — % 62 80 % 63 90 % 64 100 % On March 9, 2023, the date of distribution, a total of 368,966 common stock units were credited to participant accounts based on the closing share price of $ 31.71 . An additional 7,292 units were credited to accounts during 2023 as a result of dividends paid subsequent to the initial distribution. As a result, there were a total of 376,258 share units with a weighted average grant date fair value of $ 31.59 held within SERP accounts at September 30, 2023. SERP related expense recognized during the year was $ 625,000 . There were no shares paid during 2023 and there were no participants vested. NOTE P - STOCK AWARD PLANS The Company's stock based compensation plan provides for grants of stock options and restricted stock. On January 22, 2020, the shareholders approved the 2020 Incentive Plan. Upon approval of the 2020 Incentive Plan, the 2011 Incentive Plan terminated with respect to future awards, and the remaining shares that were not awarded under the 2011 Incentive Plan as of that date were canceled. A total of 3,200,000 shares were made available for grant under the 2020 Incentive Plan and 1,129,615 shares remain available for issuance as of September 30, 2023. When applicable, stock options are granted with an exercise price equal to the market price of the Company's stock at the date of grant; those option awards generally vest based on three to five years of continuous service and have 10-year contractual terms. The Company's policy is to issue new shares upon option exercises. The fair value of stock options granted is estimated on the 108 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 date of grant using the Black-Scholes option-pricing model. Additionally, there may be other factors that would otherwise have a significant effect on the value of employee stock options granted but are not considered by the model. Expected volatility is based on the historical volatility of the Company's stock. The risk-free interest rate is based on the U.S. Treasury yield curve that is in effect at the time of grant with a remaining term equal to the options' expected life. The expected term represents the period of time that options granted are expected to be outstanding. Stock Option Awards: There were 779,740 stock options granted under the incentive plans during 2023, compared to 352,043 stock options granted in 2022 and no stock options granted in 2021 under the previous plan. A summary of stock option activity and changes during the year are as follows. Options Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (In thousands) Outstanding at September 30, 2021 1,030,323 $ 29.14 8 $ 5,330 Granted 352,043 32.49 Exercised ( 64,415 ) 28.16 Forfeited ( 180,343 ) 30.24 Outstanding at September 30, 2022 1,137,608 30.06 8 — Granted 779,740 28.47 Exercised ( 35,877 ) 30.39 Forfeited ( 173,646 ) 30.07 Outstanding at September 30, 2023 1,707,825 $ 29.32 8 $ — Exercisable at September 30, 2023 318,695 $ 33.15 7 $ — The table below presents other information regarding stock options. Year ended September 30, 2023 2022 2021 (In thousands, except grant date fair value per stock option) Compensation cost for stock options $ 1,875 $ 1,296 $ 1,676 Weighted average grant date fair value per stock option 5.91 5.10 4.39 Total intrinsic value of options exercised 214 433 276 Grant date fair value of options exercised 198 345 78 Cash received from option exercises 1,089 1,823 339 The following is a summary of activity related to unvested stock options. 109 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 Year ended September 30, 2023 2022 2021 Unvested Stock Options Options Outstanding Weighted Average Grant Date Fair Value Options Outstanding Weighted Average Grant Date Fair Value Options Outstanding Weighted Average Grant Date Fair Value Outstanding at beginning of period 981,410 $ 5.07 1,031,134 $ 4.39 1,210,689 $ 4.38 Granted 779,740 7.11 352,043 7.18 — — Vested ( 217,695 ) 6.13 ( 223,387 ) 5.32 — — Forfeited ( 153,033 ) 5.38 ( 178,380 ) 5.02 ( 179,555 ) 4.31 Outstanding at end of period 1,390,422 $ 5.93 981,410 $ 5.07 1,031,134 $ 4.39 As of September 30, 2023, there was $ 4,590,961 of unrecognized compensation cost related to stock options. Restricted Stock Awards: The Company grants shares of restricted stock pursuant to the incentive plans. The restricted stock grants are subject to a service condition and vest over a period of one to seven years . Certain grants of restricted stock to executive officers are also subject to additional market and performance conditions based upon meeting certain total shareholder return targets pre-established by the Board. The Company had a total of 495,782 shares of restricted stock outstanding as of September 30, 2023, with a total grant date fair value of $ 12,097,081 . The following table summarizes information about unvested restricted stock activity. Year ended September 30, 2023 2022 2021 Non-vested Restricted Stock Outstanding Weighted Average Fair Value Outstanding Weighted Average Fair Value Outstanding Weighted Average Fair Value Outstanding at beginning of period 489,777 $ 21.64 522,991 $ 19.96 409,469 $ 24.32 Granted 247,966 26.48 224,593 25.34 331,344 17.04 Vested ( 119,956 ) 29.87 ( 246,119 ) 21.34 ( 132,649 ) 30.64 Forfeited ( 122,005 ) 12.16 ( 11,688 ) 23.96 ( 85,173 ) 12.94 Outstanding at end of period 495,782 $ 24.40 489,777 $ 21.64 522,991 $ 19.96 Compensation expense related to restricted stock awards was $ 4,512,000 , $ 4,367,000 , and $ 4,473,000 for the years ended 2023, 2022 and 2021, respectively. NOTE Q - SHAREHOLDERS' EQUITY The Company and the Bank are subject to various regulatory capital requirements. Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the following table) of Common Equity Tier 1, Tier 1 and Total capital to risk weighted assets (as defined in the regulations) and Tier 1 capital to average assets (as defined in the regulations). Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary action by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. The Company and the Bank are also subject to certain restrictions on the amount of dividends that they may declare without prior regulatory approval. 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. Net proceeds, after underwriting discounts and expenses, were $ 293,325,000 . The public offering consisted of the issuance and sale of 12,000,000 depositary shares, each representing a 1/40 th interest in a share of the Series A Preferred Stock, at a public offering price of $ 25.00 per depositary share. Holders of the depositary shares 110 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 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. As of September 30, 2023, and 2022, 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. To be categorized as well capitalized, the Bank must maintain minimum Common Equity Tier 1, Tier 1 risk-based, Total risk-based and Tier 1 leverage ratios as set forth in the following table. The Bank's actual capital amounts and ratios as of these dates are also presented. There are no conditions or events since that management believes have changed the Bank's categorization. Actual Capital Adequacy Guidelines Categorized as Well Capitalized Under Prompt Corrective Action Provisions Capital Ratio Ratio Ratio September 30, 2023 ($ in thousands) Common Equity Tier 1 risk-based capital ratio: The Company $ 1,769,170 10.37 % 4.50 % NA The Bank 1,982,943 11.63 4.50 6.50 % Tier 1 risk-based capital ratio: The Company 2,069,170 12.12 6.00 NA The Bank 1,982,943 11.63 6.00 8.00 Total risk-based capital ratio: The Company 2,270,877 13.31 8.00 NA The Bank 2,184,650 12.81 8.00 10.00 Tier 1 leverage ratio: The Company 2,069,170 9.39 4.00 NA The Bank 1,982,943 9.10 4.00 5.00 September 30, 2022 Common Equity Tier 1 risk-based capital ratio: The Company $ 1,613,075 9.86 % 4.50 % NA The Bank 1,781,932 10.89 4.50 6.50 % Tier 1 risk-based capital ratio: The Company 1,913,075 11.69 6.00 NA The Bank 1,781,932 10.89 6.00 8.00 Total risk-based capital ratio: The Company 2,117,574 12.94 8.00 NA The Bank 1,986,434 12.14 8.00 10.00 Tier 1 leverage ratio: The Company 1,913,075 9.51 4.00 NA The Bank 1,781,932 8.86 4.00 5.00 At periodic intervals, the Federal Reserve, the WDFI and the FDIC examine the Company's and the Bank's financial statements as part of their oversight. Based on their examinations, these regulators can direct that the Company's or Bank's financial statements be adjusted in accordance with their findings. 111 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 The Company and the Bank are subject to regulatory restrictions on paying dividends. The Company has an ongoing common share repurchase program and 1,165,161 shares were repurchased during 2023 at a weighted average price of $ 26.14 . In 2022, 92,774 shares were repurchased at a weighted average price of $ 35.14 . As of September 30, 2023, management had authorization from the Board of Directors to repurchase up to 2,559,183 additional shares. The following table sets forth information regarding earnings per common share calculations. Year ended September 30, 2023 2022 2021 Weighted average shares outstanding 65,192,510 65,287,650 72,529,188 Weighted average dilutive options 62,773 116,460 36,732 Weighted average diluted shares 65,255,283 65,404,110 72,565,920 Net income available to common shareholders (in thousands) $ 242,801 $ 221,705 $ 173,581 Basic EPS $ 3.72 $ 3.40 $ 2.39 Diluted EPS 3.72 3.39 2.39 NOTE R - FINANCIAL INFORMATION – WAFD, INC. The following WaFd, Inc. (parent company only) financial information should be read in conjunction with the other notes to the Consolidated Financial Statements. Condensed Statements of Financial Condition September 30, 2023 September 30, 2022 (In thousands) Assets Cash $ 74,450 $ 130,502 Other assets 16,171 5,000 Investment in subsidiary 2,340,199 2,143,116 Total assets $ 2,430,820 $ 2,278,618 Liabilities Dividend payable on preferred stock $ 3,656 $ 3,656 Other liabilities 738 702 Total liabilities 4,394 4,358 Shareholders’ equity Total shareholders’ equity 2,426,426 2,274,260 Total liabilities and shareholders’ equity $ 2,430,820 $ 2,278,618 112 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 Condensed Statements of Operations Twelve Months Ended September 30, 2023 2022 2021 (In thousands) Income Dividends from subsidiary $ 56,490 $ 172,850 $ 92,400 Total Income 56,490 172,850 92,400 Expense Miscellaneous expense 2,214 619 626 Total expense 2,214 619 626 Net income (loss) before equity in undistributed net income (loss) of subsidiary 54,276 172,231 91,774 Equity in undistributed net income (loss) of subsidiaries 202,643 63,956 91,697 Income before income taxes 256,919 236,187 183,471 Income tax benefit (expense) 507 143 144 Net income 257,426 236,330 183,615 Dividends on preferred stock 14,625 14,625 10,034 Net income available to common shareholders $ 242,801 $ 221,705 $ 173,581 113 WAFD, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 2023, 2022, AND 2021 Condensed Statements of Cash Flows Twelve Months Ended September 30, 2023 2022 2021 (In thousands) Cash Flows From Operating Activities Net income $ 257,426 $ 236,330 $ 183,615 Adjustments to reconcile net income to net cash provided by operating activities: Undistributed earnings from investments in subsidiaries ( 202,643 ) ( 63,956 ) ( 91,697 ) Distributions in excess of earnings from investments in subsidiaries — — — Stock based compensation expense 7,914 6,808 6,381 Decrease in other assets 1,329 — — Increase in other liabilities 36 262 440 Net cash provided by operating activities 64,062 179,444 98,739 Cash Flows From Investing Activities Purchase of strategic investments ( 12,500 ) — — Net cash provided by (used in) investing activities ( 12,500 ) — — Cash Flows From Financing Activities Proceeds from exercise of common stock options and related tax benefit 1,089 1,823 339 Proceeds from issuance of preferred stock, net — — 293,325 Proceeds from the purchase of common stock through the Employee Stock Purchase Program 177 — — Treasury stock purchased ( 30,463 ) ( 3,260 ) ( 348,651 ) Dividends on preferred stock ( 14,625 ) ( 14,625 ) ( 6,378 ) Dividends on common stock ( 63,792 ) ( 61,576 ) ( 65,876 ) Net cash provided by (used in) financing activities ( 107,614 ) ( 77,638 ) ( 127,241 ) Increase (decrease) in cash ( 56,052 ) 101,806 ( 28,502 ) Cash at beginning of year 130,502 28,696 57,198 Cash at end of year $ 74,450 $ 130,502 $ 28,696 114 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.