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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion should be read in conjunction with our Consolidated Financial Statements and related notes in “Item 8. Financial Statements and Supplementary Data” of this report. In the following discussion, unless otherwise noted, references to increases or decreases in average balances in items of income and expense for a particular period and balances at a particular date refer to the comparison with corresponding amounts for the period or date for the previous year.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company has determined that the only accounting policy critical to an understanding of its consolidated financial statements relates to the methodology for determining the amount of the allowance for credit losses (“ACL”).

Management’s determination of the amount of the ACL is a critical accounting estimate as it requires significant reliance on the credit risk we ascribe to individual borrowers, the use of estimates and significant judgment as to the amount and timing of expected future cash flows on individually evaluated loans, significant reliance on historical loss rates on homogenous portfolios, consideration of our quantitative and qualitative evaluation of past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts.

Going forward, the methodology used to calculate the ACL will be significantly influenced by the composition, characteristics and quality of our loan portfolio, as well as the prevailing economic conditions and forecasts utilized. Material changes to these and other relevant factors may result in greater volatility to the allowance for credit losses, and therefore, greater volatility in our reported earnings.

Select information regarding the ACL is below in "Allowance for Credit Losses." For further details, see Notes A andE to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data.”

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ALLOWANCE FOR CREDIT LOSSES

The following table provides detail regarding the Company's allowance for credit losses.

(In thousands)

Charge-offs:

Commercial loans

Multi-Family — — — — —

Construction — — — — —

Consumer loans

Recoveries:

Commercial loans

Multi-Family — 498 — — —

Consumer loans

Construction – Custom — — — — —

__________________

(1) This does not include a reserve for unfunded commitments of $27,500,000, $25,000,000, $6,900,000, $7,250,000 and $7,750,000 as of September 30, 2021, 2020, 2019, 2018 and 2017 respectively.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table shows changes in the Company's allowance for credit losses since the prior year.

(In thousands)

Allowance for credit losses:

Commercial loans

Consumer loans

The allowance for loan losses increased by $4,345,000, or 2.60%, from $166,955,000 as of September 30, 2020, to $171,300,000 at September 30, 2021. As of September 30, 2021, the allowance of $171,300,000 is for loans that are evaluated on a pooled basis, which was comprised of $120,357,000 related to the quantitative component and $50,943,000 related to management's qualitative overlays.

The Company recorded a provision for credit losses of $500,000 in 2021, compared to a provision of $21,750,000 for 2020. The significant provision in 2020 was due to higher expected losses with the onset of the global pandemic. In 2021, provisioning for net growth in the loan portfolio was mostly offset by releases related to improvements in macroeconomic variables used in the forecast component of the reserve. For the year ended September 30, 2021, net recoveries were $6,345,000, compared to $3,271,000 in the prior year. No allowance was recorded as of September 30, 2021 for the $305,162,000 of PPP loans, which are included in the commercial & industrial loan category, due to the government guarantee. The ratio of the total ACL to total gross loans decreased to 1.22% as of September 30, 2021, as compared to 1.33% as of September 30, 2020. The decrease was primarily related to improvements in macroeconomic variables used in the forecast component of the ACL.

The reserve for unfunded loan commitments was $27,500,000 as of September 30, 2021, compared to $25,000,000 as of September 30, 2020.

Management believes the total ACL is sufficient to absorb estimated losses inherent in the portfolio of loans and unfunded commitments.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table sets forth the amount of the Company’s allowance for loan losses by loan portfolio and class.

($ in thousands)

Commercial loans

Consumer loans

___________________

(1)Represents the loans receivable for each respective loan class as a % of total loans receivable.

(2)Represents the allowance for each respective loan class as a % of loans receivable for that same loan class.

(3)This does not include a reserve for unfunded commitments of $27,500,000, $25,000,000, $6,900,000, $7,250,000 and $7,750,000 as of September 30, 2021, 2020, 2019, 2018 and 2017, respectively.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ASSET QUALITY

Troubled debt restructured loans ("TDRs"). TDRs are reserved for under the Company's CECL methodology. Most TDRs are performing and accruing 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 basis points for a specific term, usually six to twelve months. Interest-only payments may also be approved during the modification period.

Concessions for construction, land A&D and multi-family loans are typically an extension of maturity combined with a rate reduction of normally 100 basis points. Before granting approval to modify a loan in a TDR, a borrower’s ability to repay is considered by evaluating current income levels, debt-to-income ratio, credit score, loan payment history and an updated evaluation of the secondary repayment source.

If a 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 it is concluded that a full repayment is highly probable, it will remain on accrual status following restructuring. If the homogeneous restructured loan does not perform, it is placed in 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. After the required six consecutive payments are made, a management assessment may conclude that collection of the entire principal and interest due is still in doubt. In those instances, the loan will remain on non-accrual. A loan that defaults and is subsequently modified would impact the Company's delinquency trend, which is part of the qualitative risk factors component of the CECL methodology. Any modified loan that re-defaults and is charged-off would impact the quantitative component of the CECL methodology.

Non-Performing Assets. When a borrower violates a condition of a loan, the Bank attempts to cure the default by contacting the borrower. In most cases, defaults are cured promptly. If the default is not cured within an appropriate time frame, typically 90 days, the Bank may institute appropriate action to collect the loan, such as making demand for payment or initiating foreclosure proceedings on the collateral. If foreclosure occurs, the collateral will typically be sold at public auction and may be purchased by the Bank.

Loans are placed on nonaccrual status when, in the judgment of management, the probability of collecting interest or principal 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 Bank does not accrue interest on loans 90 days past due or more. See Note A to the Consolidated Financial Statements included in Item 8 hereof for additional information.

The Bank will consider modifying the interest rate and terms of a loan if it determines that a modification is deemed to be the best option available for collection in full or to minimize the loss to the Bank. Most loans restructured in TDRs are accruing and performing loans where the borrower has proactively approached the Bank about a modification due to temporary financial difficulties. Each request is individually evaluated for merit and likelihood of success. The modification of these loans is typically a payment reduction through a rate reduction of from 100 to 200 bps for a specific term, usually six to twelve months. Interest-only payments may also be approved during the modification period. Principal forgiveness generally is not an available option for restructured loans. As of September 30, 2021, single-family residential loans comprised 92.1% of restructured loans. The Bank reserves for restructured loans within its pool based general reserve methodology, except in instances where management considers it appropriate to evaluate individually.

Real estate acquired by foreclosure or deed-in-lieu thereof (“REO” or “Real Estate Owned”) is classified as real estate held for sale. When property is acquired, it is recorded at the fair market value less estimated selling costs at the date of acquisition. Interest accrual ceases on the date of acquisition and all costs incurred in maintaining the property from that date forward are expensed as incurred. Costs incurred for the improvement or development of such property is capitalized. See Note A to the Consolidated Financial Statements included in Item 8 hereof for additional information.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table sets forth information regarding the Company's restructured loans and non-performing assets.

(In thousands)

Non-accrual loans:

Commercial loans

Consumer loans

Total non-performing assets to total assets 0.22 % 0.20 % 0.27 % 0.44 % 0.46 %

___________________

(1) For the year ended September 30, 2021, the Company recognized $9,354,000 in interest income on cash payments received from borrowers on non-accrual loans. The Company would have recognized interest income of $1,373,000 for the same period had these loans performed according to their original contract terms. The recognized interest income may include more than twelve months of interest for some of the non-accrual loans that were brought current or paid off. In addition to the non-accrual loans reflected in the above table, the Company had $355,151,000 of loans that were less than 90 days delinquent at September 30, 2021 but were classified as substandard for one or more reasons. If these loans were deemed non-performing, the Company's ratio of total non-performing assets and performing restructured loans as a percent of total assets would have increased to 2.35% at September 30, 2021. For a discussion of the Company's policy for placing loans on non-accrual status, see Note A to the Consolidated Financial Statements included in Item 8 of this report.

Non-performing assets increased 15.7% to $43,625,000, or 0.22% of total assets, at September 30, 2021, compared to $37,695,000, or 0.20% of total assets, at September 30, 2020. The increase was primarily a result of $2,693,000 higher non-accrual loans and $3,238,000 higher real estate owned. Other property owned of $3,672,000 as of September 30, 2021 is comprised of $896,000 of equipment acquired through foreclosure on a commercial loan and a $2,776,000 government guarantee related to that same loan.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

TDRs declined to $65,128,000 as of September 30, 2021, from $91,408,000 as of September 30, 2020. As of September 30, 2021, $63,655,000 or 97.7% of TDRs were performing. Non-performing TDRs of $1,473,000 are included in NPAs. Total NPAs and performing TDRs as a percent of total assets has declined to 0.55% as of September 30, 2021, from 0.67% as of September 30, 2020. During 2021, there were TDR additions of $1,511,000 and reductions of $27,790,000 due to prepayments and transfers to REO. As of September 30, 2021, 92.1% of TDRs are comprised of single-family residential loans.

As of September 30, 2021, real estate owned totaled $8,204,000, an increase of $3,238,000, or 65.2%, from $4,966,000 as of September 30, 2020, as new REO properties were partially offset by sales of foreclosed properties. During 2021, the Company sold real estate owned properties for total net proceeds of $3,340,000. The majority of REO properties are former bank premises that are expected to be sold.

The ratio of the allowance for loan losses to non-accrual loans decreased to 540% as of September 30, 2021, from 575% as of September 30, 2020.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CHANGES IN FINANCIAL CONDITION

Cash and cash equivalents: Cash and cash equivalents increased to $2,090,809,000 at September 30, 2021, as compared to $1,702,977,000 at September 30, 2020. The change was primarily due to the $1,762,488,000 increase in customer accounts, the majority of which was used to fund growth in the loan portfolio and pay down FHLB borrowings. Changes in investment securities balances discussed below also contributed to growth in cash and cash equivalents.

Available-for-sale investment securities: Available-for-sale securities decreased $111,233,000, or 4.9%, during the year ended September 30, 2021, to $2,138,259,000, primarily due to principal repayments of $646,532,000 and sales of $1,499,000, partially offset by purchases of $530,227,000. As of September 30, 2021, the Company had a net unrealized gain on available-for-sale securities of $48,189,000, which is recorded net of tax as part of shareholders' equity.

Substantially all of the Company’s available-for-sale debt securities are issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero credit loss. The remaining securities are issued by highly-rated municipalities or corporate borrowers. The Company does not believe that any of its available-for-sale debt securities have credit loss impairment as of September 30, 2021, therefore, no allowance was recorded. The impact going forward will depend on the composition, characteristics, and credit quality of the loan and securities portfolios as well as the economic conditions at future reporting periods.

Held-to-maturity investment securities: Held-to-maturity securities decreased by $339,813,000, or 48.1%, during the year ended September 30, 2021, to $366,025,000 primarily due to principal repayments and maturities of $332,001,000. There were no held-to-maturity securities purchased or sold during the year ended September 30, 2021. Rising interest rates may cause these securities to be subject to unrealized losses. As of September 30, 2021, the net unrealized gain on held-to-maturity securities was $13,522,000, which management attributes to the change of interest rates since acquisition.

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. The Company did not record an allowance for credit losses for held-to-maturity securities as of September 30, 2021 as the investment portfolio consists primarily of U.S. government agency mortgage-backed securities that management deems to have immaterial risk of loss. The impact going forward will depend on the composition, characteristics, and credit quality of the loan and securities portfolios as well as the economic conditions at future reporting periods.

The table below shows the available-for-sale and held-for-investment securities portfolios categorized by maturity band.

September 30, 2021 AmortizedCost Weighted Average Yield

($ in thousands)

For further information on our investment portfolio, see Note C to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.

Loans receivable: Loans receivable, net of related contra accounts, increased $1,041,253,000, or 8.1%, to $13,833,570,000 at September 30, 2021, from $12,792,317,000 one year earlier. The increase resulted primarily from originations of $8,184,733,000 and loan purchases of $488,147,000, partially offset by loan repayments of $6,797,043,000 and a $776,764,000 increase to loans-in-process during the year ended September 30, 2021. Commercial loan originations accounted for 77.1% of

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

total originations and consumer originations were 22.9% as the Company continues to focus on commercial lending, coupled with growing economies in all major markets in which we operate.

The following table presents loan balances by category and the year-over-year change.

($ in thousands) ($ in thousands) $ %

Gross loans by category

Commercial loans

Consumer loans

Less:

(1) Includes $311,795,000 of SBA Payroll Protection Program loans as of September 30, 2021.

The following table summarizes the Company’s loan portfolio, due for the periods indicated based on contractual terms to maturity or repricing.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

September 30, 2021 Total Less than1 Year 1 to 5Years 5 to 15Years After 15Years

(In thousands)

Commercial loans

Consumer loans

The contractual loan payment period for residential mortgage loans originated by the Company normally ranges from 15 to 30 years. Experience during recent years has indicated that, because of prepayments in connection with refinancing and sales of property, residential loans typically have a weighted average life of approximately five years.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following tables provide information regarding loans receivable by loan class and geography.

(In thousands)

Percentage by geographic area

As % of total gross loans

Percentage by geographic area as a % of each loan type

As % of total gross loans

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table shows the change in the geographic distribution by state of the loan portfolio since the prior year.

(1) Includes loans from outside of our eight state footprint.

CARES Act and PPP Program: Pursuant to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) passed by Congress, the Company offered payment deferrals on consumer loans and commercial loans. The Company also made loans to small businesses through the Small Business Administration Paycheck Protection Program. For further information on these activities, see Note D to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.

Allowance for credit losses: For details, see the “Allowance for Credit Losses" section above in this report.

Non-performing assets: For details, see the “Asset Quality" section above in this report.

Troubled debt restructured loans ("TDRs"): For details, see the “Asset Quality" section above in this report.

Real estate owned: For details, see the “Asset Quality" section above in this report.

Interest receivable:Interest receivable was $50,636,000 as of September 30, 2021, a decrease of $3,163,000, or 5.9%, since September 30, 2020. The decrease was primarily a result of payments on previously deferred amounts on CARES Act loan modifications.

Bank Owned Life Insurance: Bank-owned life insurance increased to $233,263,000 as of September 30, 2021 from $227,749,000 as of September 30, 2020, primarily as a result of increases in the cash surrender value of the policies. The investments in bank-owned life insurance serve to assist in funding growing employee benefit costs.

Intangible assets: The Company's intangible assets totaled $310,019,000 at September 30, 2021 compared to $309,906,000 as of September 30, 2020. The balance at September 30, 2021 is comprised of $303,457,000 of goodwill and the unamortized balance of the core deposit and other intangibles of $6,562,000.

Customer accounts: As of September 30, 2021, customer deposits totaled $15,542,112,000 compared with $13,779,624,000 at September 30, 2020, a $1,762,488,000, or 12.8%, increase. During 2021, the Company was able to increase transaction accounts by $2,301,593,000 or 23.5% while time deposits decreased by $539,105,000 or 13.6%.

The following table shows customer deposits by account type.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table shows the geographic distribution by state for customer deposits.

($ in thousands) September 30, 2021 September 30, 2020 $ Change % Change

The following table sets forth, by various interest rate categories, the amount of fixed-rate time deposits that mature during the periods indicated.

Maturing in

(In thousands)

Fixed-rate time deposits:

Historically, a significant number of time deposit account holders roll over their balances into new time deposits of the same term at the Bank’s then current rate. To ensure a continuity of this trend, the Bank expects to continue to offer market rates of interest. The ability to retain maturing time deposits is difficult to project; however, the Bank believes that by competitively pricing these certificates, levels deemed appropriate by management can be achieved on a continuing basis.

At September 30, 2021, the Bank had $607,245,000 of time deposits in amounts of $250,000 or more outstanding, maturing as follows: $200,127,000 within 3 months; $131,401,000 over 3 months through 6 months; $139,859,000 over 6 months through 12 months; and $135,858,000 thereafter.

Time deposits with a maturity of one year or less have penalties for premature withdrawal equal to 90 days of interest. When the maturity is greater than one year but less than four years, the penalty is 180 days of interest. When the maturity is

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

greater than four years, the penalty is 365 days of interest. Early withdrawal penalty fee income for the years ended 2021, 2020 and 2019 amounted to $198,000, $539,000 and $895,000, respectively.

For additional details on customer accounts, including uninsured deposits, see Note K to the Consolidated Financial Statements in “Item 8. Financial Statements and Supplementary Data” of this report.

FHLB advances: FHLB advances declined to $1,720,000,000 as of September 30, 2021, as compared to $2,700,000,000 at September 30, 2020. Strong growth in customer deposits allowed the Company to reduce FHLB borrowings. Since September 30, 2020, cash flow hedges totaling $600,000,000 were terminated and the associated FHLB advances were paid off. An additional $150,000,000 of unhedged advances were repaid prior to maturity (resulting in a prepayment fee of $13,788,000) and the remaining $230,000,000 of unhedged borrowings were not renewed upon maturity. The weighted average rate for FHLB borrowings was 1.51% as of September 30, 2021, versus 1.79% at September 30, 2020, the decrease being primarily due to repayment of advances with higher rates. The Company has entered into interest rate swaps to hedge interest rate risk and convert certain FHLB advances to fixed rate payments. Taking into account these hedges, the weighted average effective maturity of FHLB advances at September 30, 2021 is 5.03 years.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

COMPARISON OF 2021 RESULTS WITH 2020

Net Income: Net income increased $10,177,000, or 5.9%, to $183,615,000 for the year ended September 30, 2021, as compared to $173,438,000 for the year ended September 30, 2020. The change was due to the factors described below.

Net Interest Income: For the year ended September 30, 2021, net interest income was $505,109,000, an increase of $35,601,000 or 7.6% from the year ended September 30, 2020. The increase in net interest income from the prior year was primarily due to average interest-earning assets increasing by $1,986,044,000 or 12.37% while average interest-bearing liabilities increased by $1,017,143,000 or 7.72%. During 2021, the average balance of loans receivable increased $943,212,000 or 7.7%, while the combined average balances of mortgage backed securities, other investment securities and cash increased by $1,054,758,000 or 28.9%. Average noninterest-bearing deposits grew by $809,741,000 over the same period. The change in net interest income was also impacted by the average rate earned on interest-earning assets declining by 58 basis points while the average rate paid on interest-bearing liabilities declined by 54 basis points.

Rate/Volume Analysis

The table below sets forth certain information regarding changes in interest income and interest expense of the Company for the years indicated. For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to: (1) changes in volume (changes in volume multiplied by old rate) and (2) changes in rate (changes in rate multiplied by old average volume). The change in interest income and interest expense attributable to changes in both volume and rate has been allocated proportionately to the change due to volume and the change due to rate.

Twelve Months Ended September 30,

Volume Rate Total Volume Rate Total Volume Rate Total

(In thousands) (In thousands) (In thousands)

Interest income:

Interest expense:

___________________

(1)Includes interest on cash equivalents and dividends on stock of the FHLB of Des Moines and FRB of San Francisco.

Provision (Release) for Credit Losses: The Company recorded a provision for credit losses of $500,000 in fiscal 2021, compared to provision of $21,750,000 in 2020. The significant provision in 2020 was due to higher expected losses with the onset of the global pandemic. In 2021, provisioning for net growth in the loan portfolio was mostly offset by releases related to improvements in macroeconomic variables used in the forecast component of the reserve. The Company had recoveries, net of

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

charge-offs, of $6,345,000 for the year ended September 30, 2021, compared with $3,271,000 of net recoveries for the year ended September 30, 2020.

Other Income: Other income was $60,561,000 for the year ended September 30, 2021, a decrease of $26,399,000, or 30.4%, from $86,960,000 for the year ended September 30, 2020. The decrease is primarily due to the recognition of a net gain of $30,700,000 in 2020 from the sale and valuation adjustments of fixed assets, including a branch property in Bellevue, Washington. In 2021, a gain of $4,700,000 was recorded for equity investments based on updated valuations, a gain of $14,110,000 was recognized on the partial termination of an interest rate swap being used to hedge a FHLB borrowing, and these amounts were partially offset by a $13,788,000 loss on early repayment of a fixed-rate FHLB borrowing.

Other Expense: Operating expense was $332,459,000 for the year ended September 30, 2021, an increase of $16,901,000, or 5.4%, from the $315,558,000 for the year ended September 30, 2020. Compensation and benefits costs increased $28,510,000 or 19.3% year-over-year primarily due to annual merit increases, higher bonus compensation accruals related to strong deposit and loan growth, and strategic investments in top talent as well as contract staff to support strategic projects. Information technology costs decreased by $10,165,000 in 2021, as 2020 reflected larger investments in new hardware and software as well as a $5,900,000 impairment charge. In September 2021, the company recognized a $2,500,000 civil money penalty paid to the Office of the Comptroller of the Currency (“OCC”) related to the previously-disclosed February 2018, Consent Order for Anti-Money Laundering and Bank Secrecy Act (“AML/BSA”) deficiencies. The Company’s efficiency ratio was 58.8% for 2021 as compared to 56.7% for the prior year. The number of staff, including part-time employees on a full-time equivalent basis, was 2,082 and 2,080 at September 30, 2021 and 2020, respectively. Total operating expense for the years ended September 30, 2021, and 2020 were 1.72% and 1.82%, respectively, of average assets.

Gain (Loss) on Real Estate Owned: Net gain on real estate owned was $427,000 for the year ended September 30, 2021, compared to a net gain of $26,000 for the year ended September 30, 2020. This amount includes ongoing maintenance expense, periodic valuation adjustments, and gains (losses) on sales of REO.

Income Tax Expense: Income tax expense was $49,523,000 for the year ended September 30, 2021, an increase of $3,775,000, or 8.3%, from the $45,748,000 for the year ended September 30, 2020. The increase is mostly due to a 6.4% increase in pre-tax income. The effective tax rate for 2021 was 21.24% as compared to 20.87% for the year ended September 30, 2020. The effective tax rate of 21.24% for 2021 differs from the statutory rate mainly due to the effects of state taxes, bank-owned life insurance, tax credit investments, tax-exempt loans to municipal entities and other qualified borrowers as well as adjustments to deferred tax items.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

COMPARISON OF 2020 RESULTS WITH 2019

For management's review of the factors that affected our results of operations for the years ended September 30, 2020 and 2019 refer to our Annual Report on Form 10-K for the year ended September 30, 2020, which was filed with the Securities and Exchange Commission on November 20, 2020.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES

The principal sources of funds for the Company's activities are loan repayments (including prepayments), net deposit inflows, borrowings, repayments and sales of investments and retained earnings, if applicable. The Company's principal sources of revenue are interest on loans and interest and dividends on investments. Additionally, the Company earns fee income for loan, deposit, insurance and other services.

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

The Company's shareholders' equity at September 30, 2021, was $2,126,064,000, or 10.82% of total assets, as compared to $2,014,133,000, or 10.72% of total assets, at September 30, 2020. The Company's shareholders' equity was impacted in the year by the February 8, 2021 issuance of Series A Preferred Stock and the receipt of net proceeds, after underwriting discounts and expenses of $293,325,000. Additionally, net income of $183,615,000, the payment of $65,876,000 in common stock dividends, payment of $6,378,000 in preferred stock dividends, $348,651,000 of treasury stock purchases, as well as other comprehensive income of $52,832,000 impacted shareholders' equity. The Company paid out 38.1% of its 2021 earnings in cash dividends to common shareholders, compared with 38.5% last year. For the year ended September 30, 2021, the Company returned 226% of net income to shareholders in the form of cash dividends and share repurchases as compared to 103% for the year ended September 30, 2020. Management believes the Company's strong net worth position allows it to manage balance sheet risk and provide the capital support needed for controlled growth in a regulated environment. Share repurchases were temporarily suspended during the COVID-19 pandemic but resumed in 2021.The Company’s share repurchase program may be modified, suspended or terminated at any time, and the timing and amount of share repurchases is subject to market conditions and the market price of the Company’s common stock, as well as other factors.

The Bank has a credit line with the Federal Home Loan Bank of Des Moines ("FHLB") up to 45% of total assets depending on specific collateral eligibility. This line provides a substantial source of additional liquidity if needed. Based on collateral pledged as of September 30, 2021, the Bank had $2,267,319,000 of additional borrowing capacity at the FHLB.

The Bank has entered into borrowing agreements with the FHLB to borrow funds under a short-term floating rate cash management advance program and fixed-rate term advance agreements. All borrowings are secured by stock of the FHLB, deposits with the FHLB, and a blanket pledge of qualifying loans receivable as provided in the agreements with the FHLB. The Bank is also eligible to borrow under the Federal Reserve Bank's primary credit program.

The Company's cash and cash equivalents were $2,090,809,000 at September 30, 2021, which is a 22.8% increase from the balance of $1,702,977,000 as of September 30, 2020. This increase was primarily due to the $1,762,488,000 increase in customer deposits, the majority of which was used to fund growth in the loan portfolio and paydown FHLB borrowings. See “Changes in Financial Condition” above and the “Statement of Cash Flows” included in the financial statements for additional details regarding this change.

The following table presents the Company's significant fixed and determinable contractual obligations, within the categories described below, by contractual maturity or payment amount.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

September 30, 2021 Total Less than1 Year 1 to 5Years Over 5Years

(In thousands)

(1) Includes non-maturing customer transaction accounts.

(2) Represents contractual maturities of FHLB advances. Taking into account cash flow hedges, the weighted average effective maturity of FHLB advances at September 30, 2021 is 5.03 years.

These obligations are included in the Consolidated Statements of Financial Condition. The payment amounts of the operating lease obligations represent those amounts contractually due.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

INTEREST RATE RISK

The primary source of income for the Company is net interest income, which is the difference between the interest income generated by interest-earning assets and the interest expense incurred for interest-bearing liabilities. The level of net interest income is a function of the average balance of interest-earning assets and interest-bearing liabilities and the difference between the yield on earning assets and the cost of interest-bearing liabilities. Both the pricing and mix of the Company's interest-earning assets and interest-bearing liabilities influence these factors. All else being equal, if the interest rates on the Company's interest-bearing liabilities increase at a faster pace than the interest rates on its interest-earning assets, the result would be a reduction in net interest income and with it, a reduction in net earnings.

Interest rate risk arises in part due to the Bank's significant holdings of fixed-rate single-family home loans, which are longer-term than customer accounts that constitute its primary liabilities. Accordingly, assets do not usually respond as quickly to changes in interest rates as liabilities. In the absence of management action, net interest income can be expected to decline when interest rates rise and to expand when interest rates fall. Shortening the maturity or repricing of the investment portfolio is one action that management can take. The composition of the investment portfolio was 56.2% variable rate and 43.8% fixed rate as of September 30, 2021 to provide some protection against rising rates. In addition, the Bank is producing more commercial loans that have shorter terms and/or variable rates and has increased less rate sensitive transaction deposit accounts to 77.9% of the deposit portfolio.

The Company's balance sheet strategy, in conjunction with low operating costs, has allowed the Company to manage interest rate risk, within guidelines established by the Board, through all interest rate cycles. It is management's objective to grow the dollar amount of net interest income, through the rate cycles, acknowledging that there will be some periods of time when that will not be feasible. Cash and cash equivalents of $2,090,809,000 and shareholders' equity of $2,126,064,000 provide management with flexibility in managing interest rate risk. Based on management's assessment of the current interest rate environment, the Company has taken steps, including growing commercial loans having shorter average lives and transaction deposit accounts, to position itself for changing interest rates.

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

In the event of an immediate and parallel increase of 200 basis points in both short- and long-term interest rates, the model estimates that net interest income would increase by 9.7% in the next year. This compares to an estimated increase of 3.4% as of the September 30, 2020 analysis. It is noted that a flattening yield curve where the spread between short-term rates and long-term rates decreases would likely result in lower net interest income and vice versa for a steepening yield curve. Management estimates that a gradual increase of 300 basis points in short-term rates and 100 basis points in long-term rates over two years would result in a 1.1% increase in net interest income in the first year and an increase of 5.7% in the second year, assuming a constant balance sheet and no management intervention.

NPV Sensitivity. The NPV is an estimate of the market value of shareholders' equity at a point in time. It is derived by calculating the difference between the present value of expected cash flows from assets and the present value of expected cash flows from liabilities and off-balance-sheet contracts. The sensitivity of the NPV to changes in interest rates provides a longer term view of interest rate risk of the current balance sheet as it incorporates all future expected cash flows. As of September 30, 2021, in the event of an immediate and parallel increase of 200 basis points in interest rates, the NPV is estimated to decrease by $207,000,000, or 6.8%, and the NPV-to-total assets ratio to decline to 15.2% from a base of 15.5%. As of September 30, 2020, in the event of an immediate and parallel increase of 200 basis points in interest rates, the NPV was estimated to increase by $141,000,000, or 5.3%, and the NPV-to-total assets ratio to rise to 15.6% from a base of 14.1%. The change in the sensitivity of the NPV ratio to this assumed change in interest rates is primarily due to the steepening of the yield curve and changes in balance sheet mix year over year.

Interest Rate Spread. The interest rate spread is measured as the difference between the rate on interest-earning assets and the rate on interest-bearing liabilities at the end of each period. The period end interest rate spread was 2.45% at September 30, 2021 and 2.34% at September 30, 2020. As of September 30, 2021, the weighted-average rate on interest-earning assets decreased by 23 basis points to 2.80% compared to September 30, 2020. The lower rate on interest-earning assets is due primarily to repayments on fixed rate loans with higher rates than newly originated loans, as well as prepayments of fixed rate mortgage-backed securities at higher rates, which resulted in asset balance mix shifting to lower yielding cash and investments. As of September 30, 2021, the weighted-average rate on interest-bearing liabilities decreased by 34 basis points to 0.35% compared to September 30, 2020. The lower rate on interest-bearing liabilities primarily resulted from a greater mix of lower rate transaction deposit accounts, time deposits repricing at lower rates and a lower rate on FHLB borrowings due to repayment of advances with higher rates. The period end interest rate spread for the last eight fiscal quarters is shown below:

The chart below shows the volatility of our period end net interest spread (dashed line measured against the right axis) compared to the relatively consistent growth in net interest income (solid line measured against the left axis). The relative consistency of net interest income is accomplished by actively managing the size and composition of the balance sheet through different rate cycles.

Net Interest Margin. The net interest margin is measured using net interest income divided by average interest-earning assets for the period. The net interest margin decreased to 2.80% for the year ended September 30, 2021, from 2.93% for the year ended September 30, 2020. The yield on interest-earning assets decreased 58 basis points to 3.28% and the cost of interest-

bearing liabilities decreased by 54 basis points to 0.61%. The lower yield on interest-earning assets is due primarily to repayments on fixed rate loans with higher rates than newly originated loans, as well as prepayments of fixed rate mortgage-backed securities at higher rates, which resulted in asset balance mix shifting to lower yielding cash and investments. The lower cost on interest-bearing liabilities primarily resulted from a greater mix of lower rate transaction deposit accounts, time deposits repricing at lower rates and a lower rate on FHLB borrowings due to repayment of advances with higher rates.

For the year ended September 30, 2021, average interest-earning assets increased by 12.4% to $18,036,174,000, up from $16,050,130,000 for the year ended September 30, 2020. The substantial balance sheet growth in 2021 was primarily due to the increase in customer deposits (noted below), which provided funding for growth in loans and other assets. During 2021, average loans receivable increased $943,212,000, or 7.7%, while the combined average balances of mortgage-backed securities, other investment securities and cash increased by $1,054,758,000 or 28.9%. Management views organic loan growth as the highest and best use of capital; thus the focus on primarily growing loans receivable.

During 2021, average interest-bearing customer deposit accounts increased $1,315,720,000 or 12.4% and the average balance of FHLB borrowings decreased by $298,569,000, or 11.8%, from 2020.

The following table sets forth the information explaining the changes in the net interest income and net interest margin.

Net Interest Income Summary

Year Ended September 30,

($ in thousands)

Assets

Liabilities and Shareholders’ Equity

___________________

(1)Interest income includes net amortization-accretion of deferred loan fees, costs, discounts and premiums of $48,079,000, $25,060,000 and $14,057,000 for year ended 2021, 2020 and 2019, respectively.

(2)Includes cash equivalents and non-mortgage backed security investments, such as U.S. agency obligations, mutual funds, corporate bonds, and municipal bonds.

(3)Net interest income divided by average interest-earning assets.

The following table shows the potential impact of rising interest rates on net income for one year. The Company's focus is primarily on the impact of rising rates generally, given the historically low current interest rate environment and the risk of abrupt upward or downward changes in short term rates. It is important to note that this is not a forecast or prediction of future events, but is used as a tool for measuring potential risk. This analysis assumes zero balance sheet growth and a constant percentage composition of assets and liabilities.

Potential Increase (Decrease) in Net Interest Income

Basis Point Increase in Interest Rates September 30, 2021 September 30, 2020

(In thousands, except percentages)

Actual results will differ from the assumptions used in this model, as management monitors and adjusts both the size and the composition of the balance sheet in order to respond to changing interest rates. In a rising interest rate environment, it is likely that the Company will grow its balance sheet to offset margin compression that may occur. Improvement in the net interest income sensitivity during the year is primarily the result of interest rate swap activity and extension of the maturity of certain borrowings.

Another method used to quantify interest rate risk is the net portfolio value (“NPV”) analysis. This analysis calculates the difference between the present value of interest-bearing liabilities and the present value of expected cash flows from interest-earning assets and off-balance-sheet contracts. The following tables set forth an analysis of the Company’s interest rate risk as measured by the estimated changes in NPV resulting from instantaneous and sustained parallel shifts in the yield curve (measured in 100-basis-point increments).

The tables below express the NPV under varying interest scenarios.

(Basis Points) (In thousands) (In thousands)

As of September 30, 2021, the Company was in compliance with all of its interest rate risk policy guidelines.

Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Washington Federal, Inc.

Seattle, Washington

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial condition of Washington Federal, Inc. and subsidiaries (the “Company”) as of September 30, 2021 and 2020, and 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, 2021, 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, 2021, and 2020, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2021, 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, 2021, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 19, 2021, 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 Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses - Refer to Notes A and E to the financial statements

Critical Audit Matter Description

Estimates of expected credit losses under the current expected credit loss (“CECL”) methodology required under Financial Accounting Standards Board (FASB) Accounting Standards Codification No. 326, Financial Instruments - Credit Losses (ASC 326) are based on relevant information about current conditions, past events, and reasonable and supportable forward-looking forecasts regarding collectability of the reported amounts. In order to estimate the expected credit losses for loans and unfunded loan commitments, the Company used either a cohort or weighted average remaining maturities (“WARM”) methodology to determine the historical loss rate, by loan portfolio class, then considered whether qualitative adjustments to those historical loss rates were warranted. As of September 30, 2021, the allowance for credit losses (“ACL”) was $171,300,000.

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 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 ACL, reliance on historical loss rates and the management judgments required for quantitative and qualitative evaluation of past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts, performing audit procedures to evaluate the ACL requires a high degree of auditor judgment and increased extent of effort, including the need to involve our credit specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the ACL, included the following, among others:

•We tested the effectiveness of management’s controls over (1) key assumptions and judgments, (2) the CECL estimation model for loan portfolios, (3) the qualitative adjustments determined by management including the reasonable and supportable forecast adjustment selected by management, (4) and disclosures.

•We evaluated the appropriateness of the Company’s accounting policies, assumptions, and elections involved in the application of the CECL methodology.

•We tested the underlying data and mathematical accuracy of the cohort and WARM methodologies used to determine the loan portfolio class historical loss rates.

•We evaluated the reasonableness and conceptual soundness of the methodologies, as applied in the CECL estimation models, including key assumptions and judgments in estimating expected credit losses.

•We evaluated the accuracy and completeness of the Company’s disclosures in accordance with ASC 326.

•Specific to the qualitative adjustments made to the historical loss rates:

- We assessed the appropriateness of the framework for the qualitative adjustments.

- We performed analysis to evaluate the relevance of each of the reasonable and supportable forecast assumptions to historic losses.

- We evaluated management’s reasonable and supportable forecast of economic variables by comparing forecasts to relevant external market data.

- We assessed management’s determination whether, and to what extent, a qualitative adjustment was warranted to certain loan portfolio classes to account for specific risk characteristics or current conditions that differ from the period over which the historical loss rate was determined.

Seattle, Washington

November 19, 2021

We have served as the Company’s auditor since at least 1982; however, an earlier year could not be reliably determined.

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(In thousands, except share data)

ASSETS

Held-to-maturity securities, at amortized cost 366,025 705,838

Federal and state income tax assets, net 3,877 5,708

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities

Customer accounts

Advance payments by borrowers for taxes and insurance 47,016 49,462

Commitments and contingencies (see Note M)

Shareholders’ equity

Accumulated other comprehensive income (loss), net of taxes 69,785 16,953

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share data)

INTEREST INCOME

INTEREST EXPENSE

OTHER INCOME

Gain (loss) on sale of investment securities 14 15,028 (9)

Gain (loss) on termination of hedging derivatives 14,110 — —

Prepayment penalty on long-term debt (13,788) (13,809) —

OTHER EXPENSE

Gain (loss) on real estate owned, net 427 26 810

Dividends on preferred stock 10,034 — —

PER SHARE DATA

Basic earnings per common share $ 2.39 $ 2.26 $ 2.61

Diluted earnings per common share 2.39 2.26 2.61

Dividends paid on common stock per share 0.91 0.87 0.79

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

Other comprehensive income (loss), net of tax:

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Other comprehensive income (loss) — — — — 6,998 — 6,998

Dividends on common stock ($0.79 per share) — — — (63,318) — — (63,318)

Proceeds from stock-based awards — 39 701 — — — 740

Stock-based compensation expense — 119 5,146 — — — 5,265

Repurchase of stock warrants — 39 (39) — — — —

Other comprehensive income (loss) — — — 1,661 — 1,661

Dividends on common stock ($0.87 per share) — — — (66,496) — — (66,496)

Proceeds from stock-based awards — 8 136 — — — 144

Stock-based compensation expense — 179 6,290 — — — 6,469

Other comprehensive income (loss) — — — — 52,832 — 52,832

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-based awards — 20 319 — — — 339

Stock-based compensation expense — 246 6,135 — — — 6,381

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

Loss (gain) on sale of investment securities (14) (15,028) 9

Prepayment penalty on early extinguishment of debt 13,788 13,809 —

Gain on early termination of long term borrowing hedge (14,110) — —

Impairment loss on premises and equipment 944 6,431 —

Decrease (increase) in accrued interest receivable 3,163 (4,942) (1,562)

CASH FLOWS FROM INVESTING ACTIVITIES

Purchase of strategic investments — — (5,000)

Net cash received (paid) in business combinations (1,500) (2,810) —

Premises and equipment purchased and REO improvements (29,472) (31,937) (35,530)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from the early termination of long term borrowing hedge 14,110 — —

Proceeds from issuance of preferred stock, net 293,325 — —

Dividends paid on preferred stock (6,378) — —

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Non-cash investing activities

Real estate acquired through foreclosure $ 221 $ 1,765 $ 1,839

Other personal property acquired through foreclosure — 359 205

Non-cash financing activities

Stock issued upon exercise of warrants — — 1,082

Preferred stock dividend payable 3,656 —

Cash paid during the year for

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2021, 2020, AND 2019

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Company and nature of operations. Washington Federal Bank, National Association, a federally-insured national bank dba WaFd Bank (the “Bank” or “WaFd Bank”), was founded on April 24, 1917 in Ballard, Washington and is engaged primarily in providing lending, depository, insurance and other banking services to consumers, mid-sized to large businesses, and owners and developers of commercial real estate. Washington Federal, Inc., a Washington corporation (the “Company”), was formed as the Bank’s holding company in November, 1994. As used throughout this document, the terms “Washington Federal” or the “Company” refer to the Company and its consolidated subsidiaries, and the term “Bank” refers to the operating subsidiary, Washington Federal Bank, National Association. The Company is headquartered in Seattle, Washington. The Bank conducts its activities through a network of 219 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 2021, 2020 and 2019 represent balances as of September 30, 2021, September 30, 2020, and September 30, 2019, 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 1/40th interest in a share of the Series A Preferred Stock, at a public offering price of $25.00 per depositary share. Holders of the depositary shares are entitled to all proportional rights and preferences of the Series A Preferred Stock (including, dividend, voting, redemption and liquidation rights). The depositary shares are traded on the NASDAQ Global Select Market under the symbol "WAFDP." The Series A Preferred Stock is redeemable at the option of the Company, subject to all applicable regulatory approvals, on or after April 15, 2026.

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, 2021. As of September 30, 2021 and September 30, 2020, the Company pledged cash collateral related to derivative contracts of $1,500,000 and $97,600,000, respectively.

Equity securities - The Company records equity securities within Other assets in its Consolidated Statements of Financial Condition. Investments in equity securities with readily determinable fair values (marketable) are measured at fair value, with changes in the fair value recognized as a component of Other income in the Consolidated Statements of Operations. Investments in equity investments that do not have readily determinable fair values (non-marketable) are accounted for at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer, also referred to as the measurement alternative. Any adjustments to the carrying value of these investments are recorded in Other income in the Consolidated Statements of Operations.

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.

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2021, 2020, AND 2019

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. Substantially all of the Company’s HTM debt securities are issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government and have a long history of zero credit loss. Therefore, the Company did not record an allowance for credit losses for these securities. As September 30, 2021, 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. Although ASC 326 replaced the legacy other-than-temporary impairment (“OTTI”) model with a credit loss model, it retained the fundamental nature of the legacy OTTI model. 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. Under the new guidance, an entity may no longer consider the length of time fair value has been less than amortized cost. 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, 2021, 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 nonrefundable 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.

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). Effective October 1, 2019, the Company has applied FASB ASU 2016-13, Financial Instruments - Credit Losses ("ASC 326"), so the allowance calculation is based on current expected credit loss methodology ("CECL"). Prior to October 1, 2019, the calculation was based on incurred loss methodology. The Company

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2021, 2020, AND 2019

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 CECL methodology requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures) and replaces the incurred loss methodology’s threshold that delayed the recognition of a credit loss until it was probable a loss event was incurred. 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.

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

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2021, 2020, AND 2019

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. Upon adoption of ASC 326, the Company made the following elections regarding accrued interest receivable ("AIR"):

•Presenting accrued interest receivable balances separately from their underlying instruments within the consolidated statements of financial condition.

•Excluding accrued interest receivable that is included in the amortized cost of financing receivables from related disclosure requirements.

•Continuing our policy to write off accrued interest receivable by reversing interest income in cases where the Company does not reasonably expect to receive payment.

•Not measuring an allowance for credit losses for accrued interest receivable due to the Company’s policy of writing off uncollectible accrued interest receivable balances in a timely manner. We believe accrued interest receivable recorded as of September 30, 2021 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 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.

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2021, 2020, AND 2019

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 no 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 evaluated for impairment on an annual basis during the fourth quarter. Other intangible assets are amortized over their estimated lives and are subject to impairment testing when events or circumstances change. If circumstances indicate that the carrying value of the assets may not be recoverable, an impairment charge could be recorded. The Bank amortizes the core deposit intangibles over their estimated lives using an accelerated method.

The table below provides detail regarding the Company's intangible assets.

Goodwill Core Deposit and Other Intangibles Total

(In thousands)

The table below presents the estimated future amortization expense of core deposit and other intangibles for the next five years.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2021, 2020, AND 2019

Fiscal Year Expense

(In thousands)

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 February 28, 2018, pursuant to a Stipulation and Consent to the Issuance of a Consent Order (the “Consent Order”), the Office of the Comptroller of the Currency issued a Consent Order relating to the Bank, the terms of which are intended to further enhance its Bank Secrecy Act ("BSA") program. The Consent Order requires the Bank to create a BSA-focused action plan, supplement existing customer due diligence policies and procedures, perform a BSA risk assessment, perform a transaction activity look-back, enhance training, and complete independent testing. On September 30, 2021, the Bank announced it agreed to a $2,500,000 civil money penalty relating to the Consent Order, without admitting to the alleged violations.The Consent Order remains in place. The Bank is working cooperatively with the OCC to implement the necessary changes to comply with the provisions of the Consent Order.

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 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.

Subsequent events. The Company has evaluated subsequent events for adjustment to or disclosure in the Company’s consolidated financial statements through the date of this report, and the Company has not identified any recordable or disclosable events, not otherwise reported in these consolidated financial statements or the notes thereto.

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2021, 2020, AND 2019

NOTE B - NEW ACCOUNTING PRONOUNCEMENTS

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848). The amendments in this ASU provide temporary, optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. The ASU primarily includes relief related to contract modifications and hedging relationships, as well as providing a one-time election for the sale or transfer of debt securities classified as held-to-maturity. This guidance is effective immediately and the amendments may be applied prospectively through December 31, 2022. The Company is currently in the process of evaluating the amendments and determining the impact to its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments also require the entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, including reasonably certain renewal periods. The amendments in the ASU are effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company adopted this ASU beginning October 1, 2020 and it did not have a material impact on its consolidated financial statements.

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2021, 2020, AND 2019

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, 2021 AmortizedCost Gross Unrealized FairValue Yield

Gains Losses

($ in thousands)

Available-for-sale securities

U.S. government and agency securities due

Asset-backed securities

Corporate debt securities due

Municipal bonds due

Mortgage-backed securities

Held-to-maturity securities

Mortgage-backed securities

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2021, 2020, AND 2019

September 30, 2020 AmortizedCost Gross Unrealized FairValue Yield

Gains Losses

($ in thousands)

Available-for-sale securities

U.S. government and agency securities due

Asset-backed securities

Corporate debt securities due

Municipal bonds due

Mortgage-backed securities

Held-to-maturity securities

Mortgage-backed securities

During fiscal year 2020, as permitted in conjunction with the adoption of ASU 2019-04, the Company reclassified $374,680,000 of prepayable debt securities from held-to-maturity to available-for-sale. The Company purchased $530,227,000 of available-for-sale investment securities and no held-to-maturity investment securities during 2021. Sales of available-for-sale securities totaled $1,499,000 and there were no sales of held-to-maturity investment securities in 2021. 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 $3,459,000 and $3,285,000 as of September 30, 2021 and September 30, 2020, respectively. For HTM debt securities, AIR totaled $944,000 and $1,811,000 as of September 30, 2021 and September 30, 2020, 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, 2021 and September 30, 2020, by length of time that individual securities in each category have been in a continuous loss position. There were 31 and 51 securities with an unrealized loss as of September 30, 2021 and September 30, 2020, 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.

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2021, 2020, AND 2019

September 30, 2021 Less than 12 months 12 months or more Total

(In thousands)

Available-for-sale securities

Held-to-maturity securities

Mortgage-backed securities — — — — — —

September 30, 2020 Less than 12 months 12 months or more Total

(In thousands)

Available-for-sale securities

Held-to-maturity securities

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, 2021 or September 30, 2020. 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. The issuers of the corporate debt securities and municipal bonds held are considered to be of high credit quality (rated AA or higher) and the decline in fair value is due to changes in interest rates and other market conditions. The issuers continue to make timely principal and interest payments on the bonds. The fair value is expected to recover as the bonds approach maturity.

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2021, 2020, AND 2019

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.

($ in thousands) ($ in thousands)

Gross loans by category

Commercial loans

Consumer loans

Less:

Net deferred fees, costs and discounts 61,626 52,378

(1) Includes $311,795,000 and $762,004,000 of SBA Payroll Protection Program loans as of September 30, 2021 and

September 30, 2020, respectively.

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, 2021 and September 30, 2020, AIR for loans totaled $46,234,000 and $48,704,000, 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 $5,930,015,000 and $5,361,504,000 at September 30, 2021 and September 30, 2020, 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.

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2021, 2020, AND 2019

The following summary breaks down the Company's fixed rate and adjustable rate loans by time to maturity or to rate adjustment.

Fixed-Rate Adjustable-Rate

Term To Maturity Loans % of Loans Term To Rate Adjustment Loans % of Loans

(In thousands) (In thousands)

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 $142,806,000 and $112,812,000 at September 30, 2021 and 2020, respectively. As of September 30, 2021, all of these loans were performing in accordance with contractual terms.

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2021, 2020, AND 2019

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.

(In thousands, except ratio data)

Commercial loans

Multi-family $ 475 $ — $ — $ — $ — $ —

Commercial real estate 8,038 — — 3,771 — —

Land - acquisition & development 2,340 — — — — —

Consumer loans

Construction - custom — — — — — —

Land - consumer lot loans 359 — — 243 — —

The following tables break down loan delinquencies by loan portfolio segment and class.

September 30, 2021 Days Delinquent Based on $ Amount of Loans % basedon $

Loan type Loans Receivable (Amortized Cost) Current 30 60 90 Total Past Due

($ in thousands)

Commercial loans

Consumer loans

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2021, 2020, AND 2019

September 30, 2020 Days Delinquent Based on $ Amount of Loans % basedon $

Loan type Loans Receivable (Amortized Cost) Current 30 60 90 Total Past Due

($ in thousands)

Commercial loans

Consumer loans

The Company has actively worked with its borrowers to modify consumer mortgage and commercial loans to provide payment deferrals as a result of the COVID-19 pandemic. The terms of the payment deferrals are generally 90 days for consumer mortgage loans and up to 180 days for commercial loans, and borrowers may be eligible for multiple deferrals. Pursuant to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) passed by Congress, these loan modifications are not accounted for as TDRs. In total, 1,472 consumer loans and 221 commercial loans were approved for deferrals. As of September 30, 2021, 18 mortgage loans totaling $5,600,000 and no commercial loans that had been modified remain in deferral. These loans are not considered past due until after the deferral period is over and scheduled payments have resumed.

The Company participated in the Small Business Administration’s Paycheck Protection Program. This program came about through the CARES Act to help small businesses keep their employees employed through the COVID-19 shelter in place orders. In 2020, the Company assisted over 6,500 businesses with more than $780,000,000 in PPP loan originations. In 2021 we assisted over 2,500 small businesses with $320,000,000 in PPP loans. As of September 30, 2021, approximately 7,000 PPP loans totaling $773,000,000 have been forgiven by the SBA.

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 not an available option for restructured loans. As of September 30, 2021, the outstanding balance of TDRs was $65,128,000 as compared to $91,408,000 as of September 30, 2020. As of September 30, 2021, 97.7% of the restructured loans were performing. Single-family residential loans comprised 92.1% of TDRs as of September 30, 2021. 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.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2021, 2020, AND 2019

•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.

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, 2021 and September 30, 2020.

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2021, 2020, AND 2019

September 30, 2021 Term Loans Amortized Cost Basis by Origination Year

Commercial loans

Multi-family

Commercial real estate

Commercial & industrial

Construction

Special Mention 931 — — — — — — — 931

Land - acquisition & development

Total commercial loans

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2021, 2020, AND 2019

September 30, 2021 Term Loans Amortized Cost Basis by Origination Year

Consumer loans

Single-family residential

Construction - custom

Land - consumer lot loans

30 days past due — — — — — 5 — — 5

HELOC

Consumer

60 days past due — — 4 — — 55 — — 59

Total consumer loans

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2021, 2020, AND 2019

September 30, 2020 Term Loans Amortized Cost Basis by Origination Year

Commercial loans

Multi-family

Commercial real estate

Commercial & industrial

Construction

Land - acquisition & development

Total commercial loans

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED SEPTEMBER 30, 2021, 2020, AND 2019

September 30, 2020 Term Loans Amortized Cost Basis by Origination Year

Consumer loans

Single-family residential

Construction - custom

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WAFD · 10-K · period ended 2021-09-30

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

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WAFD · 10-K · period ended 2021-09-30

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

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