Washington Federal, Inc. (NASDAQ:WAFD) (the "Company"), parent company of Washington Federal Bank ("WaFd Bank"), today announced quarterly earnings of $65,934,000 for the quarter ended March 31, 2023, an increase of 33.6% from $49,359,000 for the quarter ended March 31, 2022. After the effect of dividends on preferred stock, net income available for common shareholders was $0.95 per diluted share for the quarter ended March 31, 2023, compared to $0.70 per diluted share for the quarter ended March 31, 2022, a $0.25 or 35.7% increase in fully diluted earnings per common share. Return on common shareholders' equity for the quarter ended March 31, 2023 was 12.0% compared to 9.8% for the quarter ended March 31, 2022. Return on assets for the quarter ended March 31, 2023 was 1.2% compared to 1.0% for the same quarter in the prior year.

During the month of March 2023, the United States saw the 2^nd and 3^rd largest bank failures in its history due to sudden customer deposit outflows. WaFd Bank had net deposit inflows of $25 million in the same month. For the quarter ended March 31, 2023, WaFd Bank had net deposit outflows of $99 million or 0.6% of total deposits. Only 27% of the Bank's deposits were uninsured as of quarter end, which is a decrease from 31% as of December 31, 2022. The Bank's held to maturity ("HTM") investments were $445 million as of March 31, 2023 with a net unrealized loss of $35 million. Although not permitted by U.S. Generally Accepted Accounting Principles, including these unrealized losses in accumulated other comprehensive income ("AOCI") would result in a ratio of shareholders' equity to total assets of 10.48%, compared to 10.64%, as reported.

President and Chief Executive Officer Brent J. Beardall commented, "We were disappointed to see the failures of both Silicon Valley Bank and Signature Bank last quarter. What is most important at this point is customers having confidence in the banking system. It is the job of management, directors and the regulatory agencies to ensure banks are run in a safe and sound manner so that customers do not have to worry. Any losses from bank failures should be absorbed by the FDIC insurance fund and replenished by surviving banks that benefit from the security that comes from FDIC insurance. We are grateful for the trust and confidence our clients have placed in WaFd Bank and work each day to earn that trust by managing the bank for the long-term, which at times translates into accepting less in short-term earnings.

"This is a challenging interest rate environment for bank earnings. Presently, the yield curve is inverted with long-term rates being lower than short-term rates. The degree to which the yield curve is inverted is near a historical high. The 10-year U.S. Treasury rate was recently at 3.35% and the 3-month rate at 4.88%, a 153 basis point inversion, the second largest since 1962, which is as far back as the data is kept. As a result, bank margins are compressing. WaFd saw its net interest margin decrease from 3.69% in the December quarter to 3.51% in the March quarter. While this is a significant decline in margin, the previous quarter had represented a 25-year high in margin for the Bank and our current margin is still meaningfully higher than the 2.90% margin reported in the March 2022 quarter.

"While credit quality remains strong, with delinquent loans representing only 0.2% of total loans, we did experience our first quarterly net charge-off in almost a decade. We are monitoring our portfolio closely for signs of deterioration which we expect will occur as the stress of higher interest rates is realized throughout the economy. With an allowance for loan losses of over $205 million and robust capital, we believe the Bank is well positioned to withstand a credit cycle if that is what materializes over the next few quarters.

"There has been a significant amount of speculation about looming deterioration in the values of commercial real estate as the market adjusts to higher vacancies and capitalization rates. We understand the macro pressures on commercial real estate and believe they will be most acute in the largest metropolitan areas. We are gratified that our loan portfolio is spread over eight western states that are generally experiencing net immigration and strong job growth. Importantly, the Bank has been conservative in its commercial real estate lending requiring substantial equity from borrowers that would absorb the first portion of any losses in value. Based on December 31, 2022 estimates, the average current loan to value ratio of our multifamily loans was 49%, on commercial office 52% and on other commercial real estate 44%.

"Banking is a noble profession that enables consumers to safely manage their savings, businesses to securely pay their obligations and borrowers to conservatively leverage their assets for growth. Despite potential short-term challenges, the economic vitality of the markets we operate in is strong, our bankers are experienced, and we take pride in being a source of strength and consistent support for our clients."

Total assets were $22.3 billion as of March 31, 2023, compared to $20.8 billion at September 30, 2022, primarily due to the $1.2 billion, or 7.2%, increase in net loans. In addition, cash increased by $434.6 million while investment securities decreased by $62.8 million.

Customer deposits totaled $15.9 billion as of March 31, 2023, a decrease of $168.6 million or 1.1% since September 30, 2022. Transaction accounts decreased by $811.2 million or 6.4% during that period, while time deposits increased $642.6 million or 19.2%. As of March 31, 2023, 74.9% of the Company's deposits were transaction accounts, down from 79.2% at September 30, 2022. Core deposits, defined as all transaction accounts and time deposits less than $250,000, totaled 92.3% of deposits at March 31, 2023. Our focus historically has been on growing transaction accounts to lessen sensitivity to rising interest rates and manage interest expense, however, the current rate environment has resulted in increased demand for higher yielding deposits.

Borrowings totaled $3.8 billion as of March 31, 2023, an increase from $2.1 billion at September 30, 2022. The effective weighted average interest rate of borrowings was 3.69% as of March 31, 2023, an increase from 2.02% at September 30, 2022.

The Company had loan originations of $1.0 billion for the second fiscal quarter of 2023, compared to $2.2 billion of originations in the same quarter one year ago. Offsetting loan originations in each of these quarters were loan repayments of $1.1 billion and $1.5 billion, respectively. The Company has intentionally slowed new loan production, given the uncertain economic environment, with repayments exceeding originations. Even so, net loans outstanding grew for the quarter due to the funding of construction loans previously originated. Commercial loans represented 73% of all loan originations during the second fiscal quarter of 2023 and consumer loans accounted for the remaining 27%. Commercial loans are preferable as they generally have floating interest rates and shorter durations. The weighted average interest rate on the loan portfolio was 4.96% at March 31, 2023, an increase from 4.25% as of September 30, 2022, due primarily to higher rates on adjustable rate loans as well as higher rates on newly originated loans.

Credit quality is being monitored closely in light of the shifting economic and monetary environment. As of March 31, 2023, non-performing assets remained low from a historical perspective and totaled $46.8 million, or 0.2% of total assets, compared to 0.2% at March 31, 2022 and 0.2% at September 30, 2022. Delinquent loans were 0.2% of total loans at March 31, 2023, compared to 0.3% at March 31, 2022 and 0.2% at September 30, 2022. The allowance for credit losses (including the reserve for unfunded commitments) totaled $206 million as of March 31, 2023, and was 1.0% of gross loans outstanding, as compared to $205 million, or 1.1% of gross loans outstanding, at September 30, 2022. Net charge-offs were $5.9 million for the second fiscal quarter of 2023, compared to net recoveries of $0.5 million for the prior year same quarter.

The Company recorded a $3.5 million provision for credit losses in the second fiscal quarter of 2023, compared to a $0.5 million release of allowance for credit losses in the same quarter of fiscal 2022. The provision in the quarter ended March 31, 2023 was primarily due to growth in net loans receivable combined with the changing economic outlook amid concerns around a looming recession and recent macro-economic events.

The Company paid a quarterly dividend on the 4.875% Series A preferred stock on January 15, 2023. On March 10, 2023, the Company paid a regular cash dividend on common stock of $0.25 per share, which represented the 160^th consecutive quarterly cash dividend. Tangible common shareholders' equity per share increased by $1.36, or 5.3%, to $26.85 since September 30, 2022. The ratio of total tangible shareholders' equity to tangible assets was 9.4% as of March 31, 2023.

Net interest income was $175.0 million for the second fiscal quarter of 2023, an increase of $40.0 million or 29.6% from the same quarter in the prior year. The increase in net interest income was primarily due to an increase in the interest rate spread of 28 basis points. This was the result of the increase of 187 basis points in the average rate earned on interest-earning assets outpacing the 159 basis point increase in the average rate paid on interest-bearing liabilities. Net interest margin improved to 3.51% in the second fiscal quarter of 2023 compared to 2.90% for the prior year quarter.

Total other income was $10.1 million for the second fiscal quarter of 2023 compared to $15.7 million in the prior year same quarter. The decrease in other income was primarily due to unrealized gains of $1.2 million for certain equity investments which were recorded in the quarter ended March 31, 2022. There were unrealized losses of $4.0 million on the same investments in the quarter ended March 31, 2023. In addition, loan fee income decreased by $1.8 million when compared to the same quarter in the prior year due to a reduction in loan production. Originations for the second fiscal quarter of 2023 were $1.0 billion compared to $2.2 billion in the prior year same quarter.

Total other expense was $96.9 million in the second fiscal quarter of 2023, an increase of $8.5 million, or 9.6%, from the prior year's quarter. Compensation and benefits costs increased by $4.3 million, or 9.2%, over the prior year quarter primarily due to annual merit increases and investments in talent, strategic initiatives and a reduction in capitalized compensation as loan originations have decreased. Merger related expenses of $1.2 million were also included in total other expense. Despite these increases, the Company's efficiency ratio in the second fiscal quarter of 2023 improved to 52.3%, compared to 58.7% for the same period one year ago as a result of income growth outpacing expense growth.

Income tax expense totaled $18.6 million for the second fiscal quarter of 2023, as compared to $13.6 million for the prior year same quarter. The effective tax rate for the quarter ended March 31, 2023 was 22.00% compared to 21.60% in the prior year same quarter and 21.23% for the year ended September 30, 2022. The Company's effective tax rate varies from the statutory rate mainly due to state taxes, tax-exempt income, tax-credit investments and miscellaneous non-deductible expenses.

WaFd Bank is headquartered in Seattle, Washington, and has 199 branches in eight western states. To find out more about WaFd Bank, please visit our website www.wafdbank.com. The Company uses its website to distribute financial and other material information about the Company.

Important Cautionary Statements

The foregoing information should be read in conjunction with the financial statements, notes and other information contained in the Company's 2022 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

This press release contains statements about the Company's future that are not statements of historical or current fact. These statements are "forward-looking statements" for purposes of applicable securities laws, and are based on current information and/or management's good faith belief as to future events. Words such as "anticipate," "believe," "continue," "expect," "goal," "intend," "should," "strategy," "will," or similar expressions signify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance. By their nature, forward-looking statements involve inherent risk and uncertainties, including the following risks and uncertainties, and those risks and uncertainties more fully discussed under "Risk Factors" in the Company's September 30, 2022 10-K, which could cause actual performance to differ materially from that anticipated by any forward-looking statements. In particular, any forward-looking statements are subject to risks and uncertainties related to (i) the effect of COVID-19 and other infectious illness outbreaks that may arise in the future and the resulting governmental and societal responses; (ii) current and future economic conditions, including the effects of declines in the real estate market, high unemployment rates, inflationary pressures, and slowdowns in economic growth; (iii) financial stress on borrowers (consumers and businesses) as a result of higher interest rates or an uncertain economic environment; (iv) global economic trends, including developments related to Ukraine and Russia, and related negative financial impacts on our borrowers; (v) fluctuations in interest rate risk and market interest rates, including the effect on our net interest income and net interest margin; (vi) risks related to the proposed merger with Luther Burbank; and (vii) our ability to identify and address cyber-security risks, including security breaches, "denial of service attacks," "hacking" and identity theft. The Company undertakes no obligation to update or revise any forward-looking statement.

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES *CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION* *(UNAUDITED)*

	March 31, 2023			September 30, 2022
	(In thousands, except share and ratio data)
ASSETS
Cash and cash equivalents	$	1,118,544		$	683,965
Available-for-sale securities, at fair value		2,006,286			2,051,037
Held-to-maturity securities, at amortized cost		445,222			463,299
Loans receivable, net of allowance for loan losses of $177,420 and $172,808		17,271,906			16,113,564
Interest receivable		79,069			63,872
Premises and equipment, net		236,054			243,062
Real estate owned		8,826			6,667
FHLB and FRB stock		147,078			95,073
Bank owned life insurance		239,840			237,931
Intangible assets, including goodwill of $303,457 and $303,457		308,524			309,009
Federal and state income tax assets, net		—			—
Other assets		463,862			504,652
	$	22,325,211		$	20,772,131
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Transaction deposits	$	11,880,343		$	12,691,527
Time deposits		3,980,605			3,338,043
Total customer deposits		15,860,948			16,029,570
Borrowings		3,800,000			2,125,000
Advance payments by borrowers for taxes and insurance		44,312			50,051
Federal and state income tax liabilities, net		2,666			3,306
Accrued expenses and other liabilities		242,168			289,944
		19,950,094			18,497,871
Shareholders' equity
Preferred stock, $1.00 par value, 5,000,000 shares authorized; 300,000 and 300,000 shares issued; 300,000 and 300,000 shares outstanding		300,000			300,000
Common stock, $1.00 par value, 300,000,000 shares authorized; 136,412,977 and 136,270,886 shares issued; 65,793,099 and 65,330,126 shares outstanding		136,413			136,271
Additional paid-in capital		1,683,720			1,686,975
Accumulated other comprehensive income (loss), net of taxes		43,822			52,481
Treasury stock, at cost; 70,619,878 and 70,940,760 shares		(1,583,880	)		(1,590,207	)
Retained earnings		1,795,042			1,688,740
		2,375,117			2,274,260
	$	22,325,211		$	20,772,131
CONSOLIDATED FINANCIAL HIGHLIGHTS
Common shareholders' equity per share	$	31.54		$	30.22
Tangible common shareholders' equity per share		26.85			25.49
Shareholders' equity to total assets		10.64	%		10.95	%
Tangible shareholders' equity to tangible assets		9.39	%		9.60	%
Tangible shareholders' equity + allowance for credit losses to tangible assets		10.19	%		10.45	%
Weighted average rates at period end
Loans		4.96	%		4.25	%
Loans and mortgage-backed securities		4.81			4.13
Combined loans, mortgage-backed securities and investments		4.45			4.04
Customer accounts		1.48			0.51
Borrowings		3.69			2.02
Combined cost of customer accounts and borrowings		1.91			0.68
Net interest spread		2.86			3.36

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES *CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION* *(UNAUDITED)*
	As of
SUMMARY FINANCIAL DATA	March 31, 2023			December 31, 2022			September 30, 2022			June 30, 2022			March 31, 2022
	(In thousands, except share and ratio data)
Cash	$	1,118,544		$	645,862		$	683,965		$	607,421		$	1,947,504
Loans receivable, net		17,271,906			16,993,588			16,113,564			15,565,165			15,094,926
Allowance for credit losses ("ACL")		205,920			208,297			205,308			203,479			201,384
Available-for-sale securities, at fair value		2,006,286			2,059,837			2,051,037			2,150,732			1,909,605
Held-to-maturity securities, at amortized cost		445,222			453,443			463,299			477,884			301,221
Total assets		22,325,211			21,653,811			20,772,131			20,158,831			20,560,279
Transaction deposits		11,880,343			12,547,832			12,691,527			12,668,251			13,139,606
Time deposits		3,980,605			3,412,203			3,338,043			3,297,369			3,251,042
FHLB advances		3,425,000			3,075,000			2,125,000			1,700,000			1,720,000
Total shareholders' equity		2,375,117			2,324,381			2,274,260			2,220,111			2,191,701

FINANCIAL HIGHLIGHTS
Common shareholders' equity per share		31.54			30.96			30.22			29.39			28.97
Tangible common shareholders' equity per share		26.85			26.24			25.49			24.66			24.23
Shareholders' equity to total assets		10.64	%		10.73	%		10.95	%		11.01	%		10.66	%
Tangible shareholders' equity to tangible assets		9.39	%		9.44	%		9.60	%		9.63	%		9.29	%
Tangible shareholders' equity + ACL to tangible assets		10.19	%		10.27	%		10.45	%		10.65	%		10.29	%
Common shares outstanding		65,793,099			65,387,745			65,330,126			65,321,869			65,306,928
Preferred shares outstanding		300,000			300,000			300,000			300,000			300,000
Loans to customer deposits		108.90	%		106.48	%		100.52	%		97.49	%		92.09	%

CREDIT QUALITY
ACL to gross loans		1.02	%		1.03	%		1.06	%		1.08	%		1.13	%
ACL to non-accrual loans		595.04	%		713.83	%		594.51	%		554.76	%		598.66	%
Non-accrual loans to net loans		0.20	%		0.17	%		0.21	%		0.24	%		0.22	%
Non-accrual loans		34,606			29,180			34,534			36,679			33,639
Non-performing assets to total assets		0.21	%		0.18	%		0.21	%		0.25	%		0.23	%
Non-performing assets		46,785			38,650			44,554			50,430			47,243

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES *CONSOLIDATED STATEMENTS OF OPERATIONS* *(UNAUDITED)*

	Three Months Ended March 31,						Six Months Ended March 31,
	2023			2022			2023			2022
	(In thousands, except share and ratio data)						(In thousands, except share and ratio data)
INTEREST INCOME
Loans receivable	$	222,957		$	139,260		$	426,903		$	277,769
Mortgage-backed securities		10,422			4,659			21,035			9,451
Investment securities and cash equivalents		21,967			6,919			40,827			14,058
		255,346			150,838			488,765			301,278
INTEREST EXPENSE
Customer accounts		52,123			8,225			83,769			16,686
FHLB advances and other borrowings		28,185			7,525			47,159			15,368
		80,308			15,750			130,928			32,054
Net interest income		175,038			135,088			357,837			269,224
Provision (release) for credit losses		3,500			(500	)		6,000			—
Net interest income after provision (release)		171,538			135,588			351,837			269,224
OTHER INCOME
Gain (loss) on sale of investment securities		—			—			—			81
Gain (loss) on hedging derivatives		26			—			26			—
Prepayment penalty on long-term debt		—			—			—			—
Loan fee income		652			2,475			2,154			4,396
Deposit fee income		6,188			6,282			12,541			12,725
Other income		3,206			6,902			9,375			17,138
		10,072			15,659			24,096			34,340
OTHER EXPENSE
Compensation and benefits		51,444			47,115			100,514			94,540
Occupancy		10,918			11,788			21,020			21,878
FDIC insurance premiums		4,000			2,100			7,675			5,200
Product delivery		5,316			5,044			9,937			9,765
Information technology		12,785			11,722			25,114			23,143
Other expense		12,418			10,648			24,899			23,504
		96,881			88,417			189,159			178,030
Gain (loss) on real estate owned, net		(199	)		129			(311	)		691
Income before income taxes		84,530			62,959			186,463			126,225
Income tax provision		18,596			13,600			41,020			26,585
Net income		65,934			49,359			145,443			99,640
Dividends on preferred stock		3,656			3,656			7,312			7,312
Net income available to common shareholders	$	62,278		$	45,703		$	138,131		$	92,328
PER SHARE DATA
Basic earnings per common share	$	0.95		$	0.70		$	2.11		$	1.41
Diluted earnings per common share		0.95			0.70			2.11			1.41
Cash dividends per common share		0.25			0.24			0.49			0.47
Basic weighted average shares outstanding		65,511,131			65,301,171			65,425,623			65,253,991
Diluted weighted average shares outstanding		65,551,185			65,445,206			65,510,275			65,397,601
PERFORMANCE RATIOS
Return on average assets		1.21	%		0.98	%		1.36	%		1.00	%
Return on average common equity		12.01			9.80			13.55			9.96
Net interest margin		3.51			2.90			3.60			2.89
Efficiency ratio		52.34			58.65			49.53			58.65

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES *CONSOLIDATED STATEMENTS OF OPERATIONS* *(UNAUDITED)*

	Three Months Ended
	March 31, 2023			December 31, 2022			September 30, 2022			June 30, 2022			March 31, 2022
	(In thousands, except share and ratio data)
INTEREST INCOME
Loans receivable	$	222,957		$	203,946		$	174,710		$	149,113		$	139,260
Mortgage-backed securities		10,422			10,613			8,263			8,618			4,659
Investment securities and cash equivalents		21,967			18,860			14,960			9,417			6,919
		255,346			233,419			197,933			167,148			150,838
INTEREST EXPENSE
Customer accounts		52,123			31,646			17,071			9,284			8,225
FHLB advances and other borrowings		28,185			18,974			7,243			6,118			7,525
		80,308			50,620			24,314			15,402			15,750
Net interest income		175,038			182,799			173,619			151,746			135,088
Provision (release) for credit losses		3,500			2,500			1,500			1,500			(500	)
Net interest income after provision (release)		171,538			180,299			172,119			150,246			135,588
OTHER INCOME
Gain (loss) on sale of investment securities		—			—			18			—			—
Gain (loss) on hedging derivatives		26			—			—			—			—
Loan fee income		652			1,502			1,154			1,618			2,475
Deposit fee income		6,188			6,353			6,604			6,613			6,282
Other income		3,206			6,169			6,706			9,319			6,902
		10,072			14,024			14,482			17,550			15,659
OTHER EXPENSE
Compensation and benefits		51,444			49,070			51,304			48,073			47,115
Occupancy		10,918			10,102			10,568			10,053			11,788
FDIC insurance premiums		4,000			3,675			2,231			2,100			2,100
Product delivery		5,316			4,621			5,104			4,667			5,044
Information technology		12,785			12,329			12,228			11,831			11,722
Other expense		12,418			12,481			11,707			10,679			10,648
		96,881			92,278			93,142			87,403			88,417
Gain (loss) on real estate owned, net		(199	)		(112	)		(488	)		448			129
Income before income taxes		84,530			101,933			92,971			80,841			62,959
Income tax provision		18,596			22,424			19,576			17,546			13,600
Net income		65,934			79,509			73,395			63,295			49,359
Dividends on preferred stock		3,656			3,656			3,656			3,656			3,656
Net income available to common shareholders	$	62,278		$	75,853		$	69,739		$	59,639		$	45,703
PER SHARE DATA
Basic earnings per common share	$	0.95		$	1.16		$	1.07		$	0.91		$	0.70
Diluted earnings per common share		0.95			1.16			1.07			0.91			0.70
Cash dividends per common share		0.25			0.24			0.24			0.24			0.24
Basic weighted average shares outstanding		65,511,131			65,341,974			65,326,706			65,315,481			65,301,171
Diluted weighted average shares outstanding		65,551,185			65,430,690			65,423,817			65,395,666			65,445,206
PERFORMANCE RATIOS
Return on average assets		1.21	%		1.50	%		1.44	%		1.25	%		0.98	%
Return on average common equity		12.01			15.15			14.22			12.50			9.80
Net interest margin		3.51			3.69			3.64			3.22			2.90
Efficiency ratio		52.34			46.78			49.52			51.63			58.65

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Washington Federal Announces Quarterly Earnings Per Share of $0.95