Washington Federal, Inc. (Nasdaq: WAFD) (the "Company"), parent company of Washington Federal Bank, N.A. ("WaFd Bank"), today announced annual earnings of $183,615,000 for the fiscal year ended September 30, 2021, an increase of $10,177,000 from earnings of $173,438,000 for the year ended September 30, 2020. After the effect of dividends on preferred stock, net income available for common shareholders was $2.39 per share for the fiscal year ended September 30, 2021, a $0.13 or 5.8% increase from $2.26 for the prior fiscal year. Return on common shareholders' equity for the fiscal year ended September 30, 2021 was 8.69% compared to 8.63% for the year ended September 30, 2020. Return on assets for the year ended September 30, 2021 was 0.95% compared to 1.00% for the prior year.

President and Chief Executive Officer Brent J. Beardall commented, "We are a 104 year-old bank that is in the midst of re-inventing itself in a digital age, and fiscal 2021 was one of the best years we have ever experienced. Operating in an ongoing worldwide pandemic, WaFd Bank was able to generate record new loan originations, record core deposit balances, an eighth consecutive year of net recoveries (net loan charge-offs were less than zero), significant improvements in our Bank Secrecy Act program and improvements that resulted in a high degree of client satisfaction. We are believers in conscious capitalism, meaning that an organization can be a good corporate citizen by supporting its employees and communities while also delivering reasonable returns to its shareholders. The 4^th quarter’s earnings per share of $0.72 is an all-time quarterly high (excluding non-recurring gains). Key performance indicators are trending in the right direction: our 4^th quarter net interest margin improved on a linked quarter basis and year-over-year, loan repayments are slowing as market interest rates have increased, and we currently have the strongest loan pipeline in the Company’s history. We expect to stand apart from many of our peers in terms of loan growth, because in March of 2020, when many others pulled back, we leaned in to support our clients and to win new ones.

"One important achievement this year was the issuance of $300 million of perpetual preferred stock. Our intent was to use most of the proceeds from that February 2021 issuance for the repurchase of common stock, essentially replacing common stock with lower cost preferred stock. In our 2^nd fiscal quarter, we announced a Dutch Tender offer to repurchase common shares at a price of up to $31, but only had $53 million in shares tendered. We are happy to report that subsequently, through the open market, we repurchased more shares and ultimately a total of $349 million worth during fiscal 2021 at an average price of $32.25 per share. The bottom-line result is that by effectuating this transaction, we have increased earnings per share to common shareholders by 4.1% going forward in perpetuity (assuming the Company's earnings are at or above the current level).

"All of this is fantastic, and we are very pleased and thankful for the work of WaFd bankers to capitalize on the opportunities presented. That said, we believe and understand that business cycles will occur - the economy expands, and it will contract. Today, the Company is enjoying the best of times in terms of credit, yet we know we are only one economic shock away from that changing and significant uncertainty still exists due to the COVID delta variant, etc. With this in mind we remain vigilant, so that when a downturn happens we expect to be financially prepared to withstand severe stress scenarios and be there to support our clients when they need us the most.

"Taking into consideration both the risks and opportunities in front of us, we believe our future is as bright today as it has ever been. Why? Our WaFd Bank team has earned the trust and confidence of our clients and our reputation is spreading. Thank you for your ongoing support."

Total assets were $19.7 billion as of September 30, 2021, an increase of 4.6% from $18.8 billion at September 30, 2020. The balance sheet grew substantially since September 30, 2020 due to the increase in customer deposits (noted below), which provided funding for growth in net loans by $1.0 billion, or 8.1%, while cash increased by $388 million.

Customer deposits totaled $15.5 billion as of September 30, 2021, an increase of $1.8 billion or 12.8% since September 30, 2020. Transaction accounts increased by $2.3 billion or 23.2% during the fiscal year 2021, while time deposits decreased $517 million or 13.0%. The shift in deposit mix has been a result of a deliberate deposit pricing and customer growth strategy. The focus on transaction accounts is intended to lessen sensitivity to rising interest rates and manage interest expense. As of September 30, 2021, 77.8% of the Company's deposits were in transaction accounts. Core deposits, defined as all transaction accounts and time deposits less than $250,000, totaled 96.6% of deposits at September 30, 2021. Deposit growth was stronger than loan growth, shifting the loan-to-deposit ratio to 89.0% at September 30, 2021 compared to 92.8% at September 30, 2020.

Borrowings from the Federal Home Loan Bank ("FHLB") totaled $1.72 billion as of September 30, 2021, a decrease of $980 million or 36.3% since September 30, 2020. Strong growth in deposits allowed the Company to reduce FHLB borrowings. Since September 30, 2020, cash flow hedges totaling $600 million were terminated and the associated FHLB borrowings were paid off. An additional $150 million unhedged borrowing was repaid prior to maturity (resulting in the prepayment fee noted below) and the remaining $230 million 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. As of September 30, 2021, $1.4 billion of the $1.72 billion in outstanding FHLB advances have effective maturities greater than one year.

Record loan originations totaled $8.2 billion for fiscal year 2021 compared to $6.2 billion in fiscal year 2020. Fiscal 2021 included $322 million in SBA Paycheck Protection Program ("PPP") loan originations as compared to $782 million in fiscal 2020. Partially offsetting the loan origination volume in each of these years were loan repayments of $6.8 billion and $5.1 billion, respectively. Commercial loans represented 77% of all loan originations during fiscal 2021 with consumer loans accounting for the remaining 23%. The Company views organic loan growth funded by low-cost core deposits as the highest and best use of its capital. Commercial loans are preferable in this low-rate environment due to the fact they generally have floating interest rates and shorter durations. The weighted average interest rate on the loan portfolio was 3.47% as of September 30, 2021, a decrease from 3.71% at September 30, 2020, due primarily to payoffs of loans at higher than current market interest rates and new loans originated at current market rates.

Credit quality is being monitored closely and remains strong. As of September 30, 2021, non-performing assets remained low from a historical perspective and totaled $44 million, or 0.22% of total assets, compared to 0.20% at September 30, 2020. Since September 30, 2020, real estate owned increased by $3.2 million and non-accrual loans increased by $2.7 million. Delinquent loans were 0.19% of total loans at September 30, 2021 compared to 0.24% at September 30, 2020. The allowance for credit losses (including the reserve for unfunded commitments) totaled $199 million as of September 30, 2021 and was 1.22% of gross loans (1.24% when excluding PPP loans for which it was determined that no allowance was necessary due to the government guarantee), as compared to $192 million or 1.33% of gross loans as of September 30, 2020. Net recoveries were $6.3 million for fiscal year 2021 compared to net recoveries of $3.3 million in fiscal 2020. The Company has recorded net recoveries for eight consecutive years.

The Company recorded a provision for credit losses of $500 thousand in fiscal 2021, compared to provision of $21.8 million in fiscal 2020. The significant provision in 2020 was due to higher expected losses with the onset of the global pandemic. In fiscal 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.

On February 8, 2021, the Company issued $300 million of 4.875% Fixed Rate Non-cumulative Perpetual Preferred Stock, Series A, which qualifies as additional Tier 1 capital. During fiscal 2021, the net proceeds from the preferred stock issuance were used to repurchase common stock. During fiscal 2021, the Company repurchased a total of 10.8 million shares of common stock at a weighted average price of $32.25 per share and has authorization to repurchase approximately 3.8 million additional shares. The Company varies the pace of share repurchases depending on several factors, including share price, business opportunities and capital levels. On August 20, 2021, the Company paid a cash dividend of $0.23 per share to common stockholders of record on August 6, 2021, which was the Company’s 154^th consecutive quarterly cash dividend. The Company paid a quarterly dividend on the preferred stock on July 15, 2021. Tangible common shareholders’ equity per share increased by $0.75 or 3.33% during fiscal 2021 to $23.27. The ratio of tangible shareholders' equity to tangible assets increased to 9.39% as of September 30, 2021.

Net interest income was $505 million for fiscal 2021, a increase of $36 million or 7.6% from the prior year. The increase in net interest income from the prior year was primarily due to average interest-earning assets increasing by $2.0 billion or 12.37% while average interest-bearing liabilities increased by $1.0 billion or 7.72%. Average noninterest-bearing deposits grew by $810 million 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. Net interest margin of 2.80% in fiscal 2021 was down from 2.93% for the prior year. Net interest margin of 2.88% in the 4^th fiscal quarter of 2021 was up from 2.67% in the same quarter of the prior year.

Total other income was $61 million for fiscal year 2021, a decrease of $26 million from $87 million in the prior year. The decrease is primarily due a net gain of $30.7 million being recognized in fiscal 2020 from the sale and valuation adjustments of fixed assets, including a branch property in Bellevue, Washington. Fiscal 2021 included a gain of $4.7 million that was recorded for an equity investment based on an updated valuation. Fiscal year 2021 also included a gain of $14.1 million that was recognized on the partial termination of an interest rate swap being used to hedge a FHLB borrowing mostly offset by a $13.8 million loss on early repayment of a fixed-rate FHLB borrowing.

Total operating expenses were $332 million for fiscal 2021, an increase of $17 million or 5.4% from the prior year. Compensation and benefits costs increased $29 million or 19.32% 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 and contract staff to support strategic projects. Information technology costs decreased by $10.2 million in 2021, as fiscal 2020 reflected larger investments in new hardware and software as well as a $5.9 million impairment charge. Operating expenses were $85.7 million for the 4th fiscal quarter of 2021, an increase of $7.5 million or 9.6% from the same quarter a year ago due primarily to the compensation related changes noted above as well as a $2.5 million civil money penalty paid to the Office of the Comptroller of the Currency (“OCC”) that pertains 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 58.77% for fiscal 2021 as compared to 58.99% (adjusted) for the prior year. The unadjusted efficiency ratio for the twelve months ended September 30, 2020 was 56.71%. See below under “Non-GAAP Financial Measures” for a reconciliation. The efficiency ratio was 56.8% for the 4th fiscal quarter of 2021 compared to 62.1% for the same quarter a year ago.

For the year ended September 30, 2021, the Company recorded federal and state income tax expense of $50 million, which equates to a 21.24% effective tax rate. This compares to an effective tax rate of 20.87% for fiscal year 2020. The Company's effective tax rate for fiscal 2021 differs from the statutory rate mainly due to state taxes, tax-exempt income, tax-credit investments and adjustments to deferred tax items. The Company estimates that its effective tax rate going forward will be approximately 21%.

Washington Federal Bank, a national bank with headquarters in Seattle, Washington, has 219 branches in eight western states and does business as "WaFd Bank." To find out more, please visit our website www.wafdbank.com. The Company uses its website to distribute financial and other material information.

Non-GAAP Financial Measures

Adjusted other income of $55.4 million for the twelve months ended September 30, 2020 is calculated by subtracting the $31.6 million gain on the sale of the Bellevue, Washington branch property from GAAP other income of $87.0 million.

Adjusted other expense of $309.7 million for the twelve months ended September 30, 2020 is calculated by subtracting the $5.9 million impairment on systems hardware and software from GAAP other expense of $315.6 million.

Adjusted efficiency ratio of 58.99% for the twelve months ended September 30, 2020 is calculated by dividing adjusted other expense of $309.7 million by adjusted total income of $524.9 million (net interest income of $469.5 million plus adjusted other income of $55.4 million). The unadjusted efficiency ratio for the twelve months ended September 30, 2020 was 56.71%.

Important Cautionary Statements

The foregoing information should be read in conjunction with the financial statements, notes and other information contained in the Company’s 2020 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Additional information will also be set forth in the Company’s Annual Report on Form 10-K for the year ended September 30, 2021.

This press release contains statements about the Company’s future that are not statements of historical fact, and that are subject to risks and uncertainties. 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. The words "estimate," "believe," "expect," "anticipate," "project," and 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, which change over time, and actual performance could differ materially from those anticipated by any forward-looking statements. In particular, any forward-looking statements are subject to risks and uncertainties related to the ongoing COVID-19 pandemic and the resulting governmental and societal responses, as well as the risks described in our filings with the Securities and Exchange Commission, including those identified under the caption “Risk Factors” in the Company’s Annual Reports on Form 10-K and quarterly reports on Form 10-Q. Caution should be taken in relying on any forward-looking statement. The forward-looking statements included herein are made only as of the date of this press release, and the Company undertakes no obligation to update or revise any forward-looking statement.

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Washington Federal Reports Earnings per Share of $2.39 for Fiscal 2021