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EX-32 - EXHIBIT 32 - WASHINGTON FEDERAL INCwafd10-qex326302015.htm
EX-31.1 - EXHIBIT 31.1 - WASHINGTON FEDERAL INCwafd10-qex3116302015.htm
EX-31.2 - EXHIBIT 31.2 - WASHINGTON FEDERAL INCwafd10-qex3126302015.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 001-34654
WASHINGTON FEDERAL, INC.
(Exact name of registrant as specified in its charter)
 
Washington
 
91-1661606
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
425 Pike Street Seattle, Washington 98101
(Address of principal executive offices and zip code)
(206) 624-7930
(Registrant’s telephone number, including area code)
 
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
x
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Title of class:
at August 6, 2015
Common stock, $1.00 par value
93,982,148



WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
 
 
 
 
  
The Consolidated Financial Statements of Washington Federal, Inc. and Subsidiaries filed as a part of the report are as follows:
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2




WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
 
June 30, 2015
 
September 30, 2014
 
(In thousands, except share data)
ASSETS
 
 
 
Cash and cash equivalents
$
349,550

 
$
781,843

Available-for-sale securities, at fair value
2,624,374

 
3,049,442

Held-to-maturity securities, at amortized cost
1,586,514

 
1,548,265

Loans receivable, net
8,645,609

 
8,148,322

Covered loans, net
77,311

 
176,476

Interest receivable
39,550

 
52,037

Premises and equipment, net
267,835

 
257,543

Real estate held for sale
55,491

 
55,072

Real estate held for investment
4,336

 
4,808

Covered real estate held for sale
4,434

 
24,082

FDIC indemnification asset
18,783

 
36,860

FHLB and FRB stock
103,189

 
158,839

Bank owned life insurance
101,720

 

Intangible assets, net
300,109

 
302,909

Federal and state income tax assets, net
11,286

 
16,515

Other assets
180,405

 
143,028

 
$
14,370,496

 
$
14,756,041

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Liabilities
 
 
 
Customer accounts
 
 
 
Transaction deposit accounts
$
5,696,536

 
$
5,490,687

Time deposit accounts
4,881,849

 
5,226,241

 
10,578,385

 
10,716,928

FHLB advances
1,730,000

 
1,930,000

Advance payments by borrowers for taxes and insurance
30,656

 
29,004

Accrued expenses and other liabilities
72,334

 
106,826

 
12,411,375

 
12,782,758

Stockholders’ equity
 
 
 
Common stock, $1.00 par value, 300,000,000 shares authorized;
133,688,179 and 133,322,909 shares issued; 93,982,148 and 98,404,705 shares outstanding
133,688

 
133,323

Paid-in capital
1,643,243

 
1,638,211

Accumulated other comprehensive income, net of taxes
10,977

 
20,708

Treasury stock, at cost; 39,706,031 and 34,918,204 shares
(628,157
)
 
(525,108
)
Retained earnings
799,370

 
706,149

 
1,959,121

 
1,973,283

 
$
14,370,496

 
$
14,756,041

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3


WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
Quarter Ended June 30,
 
Nine Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands, except per share data)
INTEREST INCOME
 
 
 
 
 
 
 
Loans and covered assets
$
107,250

 
$
108,089

 
$
324,817

 
$
321,650

Mortgage-backed securities
16,995

 
20,507

 
54,313

 
60,947

Investment securities and cash equivalents
5,055

 
6,415

 
16,084

 
16,023

 
129,300

 
135,011

 
395,214

 
398,620

INTEREST EXPENSE
 
 
 
 
 
 
 
Customer accounts
12,485

 
14,238

 
38,504

 
44,517

FHLB advances and other borrowings
16,250

 
17,494

 
50,082

 
51,877

 
28,735

 
31,732

 
88,586

 
96,394

Net interest income
100,565

 
103,279

 
306,628

 
302,226

Reversal of provision for loan losses
(1,932
)
 
(3,000
)
 
(11,381
)
 
(11,936
)
Net interest income after reversal of provision for loan losses
102,497

 
106,279

 
318,009

 
314,162

 
 
 
 
 
 
 
 
OTHER INCOME
 
 
 
 
 
 
 
Gain on sale of investments
9,639

 

 
9,639

 

Prepayment penalty on long-term debt
(7,941
)
 

 
(10,554
)
 

Loan fee income
1,915

 
2,297

 
6,028

 
5,668

Deposit fee income
5,156

 
4,036

 
16,538

 
9,120

Other income
3,042

 
1,739

 
6,380

 
5,774

 
11,811

 
8,072

 
28,031

 
20,562

 
 
 
 
 
 
 
 
OTHER EXPENSE
 
 
 
 
 
 
 
Compensation and benefits
29,824

 
28,946

 
89,453

 
81,908

Occupancy
8,492

 
7,468

 
24,866

 
21,864

FDIC insurance premiums
2,377

 
2,978

 
5,431

 
8,679

Information technology
3,783

 
3,505

 
11,695

 
10,365

Product delivery
6,175

 
4,577

 
17,222

 
9,961

Other expense
6,068

 
5,819

 
18,975

 
16,694

 
56,719

 
53,293

 
167,642

 
149,471

 
 
 
 
 
 
 
 
Gain (loss) on real estate acquired through foreclosure, net
3,188

 
(2,056
)
 
4,976

 
(3,454
)
Income before income taxes
60,777

 
59,002

 
183,374

 
181,799

Income tax provision
21,727

 
21,092

 
65,556

 
64,996

NET INCOME
$
39,050

 
$
37,910

 
$
117,818

 
$
116,803

 

 


 
 
 
 
PER SHARE DATA
 
 
 
 
 
 
 
Basic earnings
$
0.41

 
$
0.38

 
$
1.22

 
$
1.15

Diluted earnings
0.41

 
0.37

 
1.22

 
1.14

Dividends paid on common stock per share
0.13

 
0.10

 
0.41

 
0.30

Basic weighted average number of shares outstanding
94,466,524

 
100,979,219

 
96,335,777

 
101,777,112

Diluted weighted average number of shares outstanding, including dilutive stock options
94,904,262

 
101,393,936

 
96,726,085

 
102,234,350

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4


WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
 
Quarter Ended June 30,
 
Nine Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(In thousands)
 
 
 
 
 
 
 
 
Net income
$
39,050

 
$
37,910

 
$
117,818

 
$
116,803

 
 
 
 
 
 
 
 
Other comprehensive income (loss) net of tax:
 
 
 
 
 
 
 
Net unrealized gain (loss) on available-for-sale securities
(35,001
)
 
22,026

 
(21,378
)
 
28,527

Reclassification adjustment of net gain (loss) from sale
 
 
 
 
 
 
 
     of available-for-sale securities included in net income
9,639

 

 
9,639

 

Related tax benefit (expense)
9,320

 
(8,095
)
 
4,314

 

 
(16,042
)
 
13,931

 
(7,425
)
 
28,527

 
 
 
 
 
 
 
 
Net unrealized gain (loss) on long-term borrowing hedge
5,587

 

 
(3,646
)
 

Related tax benefit (expense)
(2,053
)
 

 
1,340

 
(10,484
)
 
3,534

 

 
(2,306
)
 
(10,484
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss) net of tax
(12,508
)
 
13,931

 
(9,731
)
 
18,043

Comprehensive income
$
26,542

 
$
51,841

 
$
108,087

 
$
134,846

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



5


WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED) 
 
Common Stock
Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Income
Treasury Stock
Total
 
 
 
(In thousands)
 
 
 
Balance at October 1, 2014
$
133,323

$
1,638,211

$
706,149

$
20,708

$
(525,108
)
$
1,973,283

Net income




117,818





117,818

Other comprehensive income (loss)



(9,731
)

(9,731
)
Dividends on common stock




(24,597
)




(24,597
)
Compensation expense related to common stock options


900







900

Proceeds from exercise of common stock options
106

1,570







1,676

Restricted stock expense
259

2,562







2,821

Treasury stock acquired








(103,049
)
(103,049
)
Balance at June 30, 2015
$
133,688

$
1,643,243

$
799,370

$
10,977

$
(628,157
)
$
1,959,121

 
 
 
 
 
 
 
 
Common Stock
Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Income
Treasury Stock
Total
 
 
 
(In thousands)
 
 
 
Balance at October 1, 2013
$
132,573

$
1,625,051

$
594,450

$
6,378

$
(420,817
)
$
1,937,635

Net income




116,803





116,803

Other comprehensive income (loss)



18,043


18,043

Dividends on common stock




(31,393
)




(31,393
)
Compensation expense related to common stock options


900







900

Proceeds from exercise of common stock options
759

9,599







10,358

Restricted stock expense

2,520







2,520

Treasury stock acquired








(64,231
)
(64,231
)
Balance at June 30, 2014
$
133,332

$
1,638,070

$
679,860

$
24,421

$
(485,048
)
$
1,990,635

 
 
 
 
 
 
 
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


6


WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) 
 
Nine Months Ended June 30,
 
2015
 
2014
 
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
 
Net income
$
117,818

 
$
116,803

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
19,075

 
8,467

Cash received from (paid to) FDIC under loss share
(714
)
 
949

Stock option compensation expense
900

 
900

Reversal of provision for loan losses
(11,381
)
 
(11,936
)
(Gain) loss on investment securities and real estate held for sale
(25,817
)
 
598

Prepayment penalty from repayment of borrowings
10,554

 

Decrease (increase) in accrued interest receivable
12,487

 
(2,174
)
Decrease (increase) in FDIC loss share receivable
1,795

 
(2,029
)
Decrease in federal and state income tax
10,883

 
8,258

Increase in cash surrender value in bank owned life insurance
(1,720
)
 

Increase in other assets
(37,376
)
 
(14,514
)
Decrease in accrued expenses and other liabilities
(23,738
)
 
(10,487
)
Net cash provided by operating activities
72,766

 
94,835

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Net loan originations
(204,527
)
 
(329,076
)
Loans purchased
(183,406
)
 

FHLB & FRB stock redemption
55,649

 
9,952

Available-for-sale securities purchased
(329,490
)
 
(1,080,476
)
Principal payments and maturities of available-for-sale securities
502,561

 
363,103

Proceeds on available-for-sale securities sold
244,749

 

Held-to-maturity securities purchased
(249,382
)
 

Principal payments and maturities of held-to-maturity securities
207,954

 
68,981

Net cash received from acquisitions

 
1,776,660

Proceeds from sales of real estate owned and held for investment
45,603

 
49,550

Proceeds from sales of covered REO
17,474

 
17,216

Purchase of bank owned life insurance
(100,000
)
 

Premises and equipment purchased and REO improvements
(24,582
)
 
(35,647
)
Net cash provided by (used in) investing activities
(17,397
)
 
840,263

CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Net decrease in customer accounts
(138,390
)
 
(178,161
)
Repayments of borrowings
(210,554
)
 

Proceeds from exercise of common stock options and related tax benefit
1,676

 
10,358

Dividends paid on common stock
(38,997
)
 
(31,393
)
Treasury stock purchased
(103,049
)
 
(64,231
)
Increase (decrease) in advance payments by borrowers for taxes and insurance
1,652

 
(13,930
)
Net cash used in financing activities
(487,662
)
 
(277,357
)
Increase (decrease) in cash and cash equivalents
(432,293
)
 
657,741

Cash and cash equivalents at beginning of period
781,843

 
203,563

Cash and cash equivalents at end of period
$
349,550

 
$
861,304

(CONTINUED)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7



WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
 
Nine Months Ended June 30,
 
2015
 
2014
 
(In thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
Non-cash investing activities
 
 
 
Non-covered real estate acquired through foreclosure
$
23,940

 
$
32,818

Covered real estate acquired through foreclosure
1,892

 
6,163

Cash paid during the period for
 
 
 
Interest
88,511

 
97,485

Income taxes
48,096

 
54,072

The following summarizes the non-cash activities related to acquisitions
 
 
 
Fair value of assets and intangibles acquired, including goodwill
$

 
$
80,384

Fair value of liabilities assumed

 
(1,857,044
)
Net fair value of assets (liabilities)
$

 
$
(1,776,660
)
 
 
 
 

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8


WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED JUNE 30, 2015 AND 2014
(UNAUDITED)

NOTE A – Summary of Significant Accounting Policies
Nature of Operations - Washington Federal, Inc. is a Washington corporation headquartered in Seattle, Washington. The Company is a bank holding company that conducts its operations through a federally-insured national bank subsidiary. The Bank is principally engaged in the business of attracting deposits from the general public and investing these funds, together with borrowings and other funds, in one-to-four family residential real estate loans, multi-family real estate loans and commercial loans. As used throughout this document, the terms "Washington Federal" or the "Company" refer to Washington Federal, Inc. and its consolidated subsidiaries and the term "Bank" refers to the operating subsidiary Washington Federal, National Association.
Basis of Presentation - The consolidated unaudited interim financial statements included in this report have been prepared by Washington Federal. All intercompany transactions and accounts have been eliminated in consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect amounts reported in the financial statements. Actual results could differ from these estimates. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation are reflected in the interim financial statements. The September 30, 2014 Consolidated Statement of Financial Condition was derived from audited financial statements.
The information included in this Form 10-Q should be read in conjunction with the financial statements and related notes in the Company's 2014 Annual Report on Form 10-K (“2014 Form 10-K”) as filed with the SEC. Interim results are not necessarily indicative of results for a full year.
Summary of Significant Accounting Policies - The significant accounting policies used in preparation of the Company's consolidated financial statements are disclosed in its 2014 Form10-K. Other than the reclassifications discussed below, there have not been any material changes in our significant accounting policies compared to those contained in our 2014 Form 10-K disclosure for the year ended September 30, 2014.
Off-Balance-Sheet Credit Exposures – The only material off-balance-sheet credit exposures are loans in process and unused lines of credit, which had a combined balance at June 30, 2015 and September 30, 2014, of $686,134,000 and $583,838,000, respectively. The Company estimates losses on off-balance-sheet credit exposures by allocating a loss percentage derived from historical loss factors for each asset class.
Reclassifications - Reclassification of Other Expenses into Product Delivery and Information Technology line items have been made to the financial statements for the quarters prior to September 30, 2014 to conform to current year classifications.


NOTE B - Acquisitions

There were no acquisitions completed during the nine months ended June 30, 2015. During the 2014 fiscal year, the Bank acquired seventy-four branches from Bank of America, National Association. Effective as of the close of business on October 31, 2013, the Bank completed the acquisition of eleven branches that are located in New Mexico. Effective as of the close of business on December 6, 2013, the Bank completed the acquisition of another forty branches that are located in Washington, Oregon, and Idaho. Effective as of the close of business on May 2, 2014, the Bank completed the acquisition of another twenty-three branches that are located in Arizona and Nevada. Management believes that these transactions represent a significant enhancement of our branch network. These transactions have brought new customers to the Bank and improved the deposit mix and reduced overall funding costs.

The combined acquisitions provided $1,853,798,000 in deposit accounts, $12,881,000 in loans, and $25,097,000 in branch properties. The Bank paid a 1.99% premium on the total deposits and received $1,776,660,000 in cash from the transactions. The acquisition method of accounting was used to account for the acquisitions. The purchased assets and assumed liabilities are recorded at their respective acquisition date estimated fair values. The Bank recorded $11,040,000 in core deposit intangible and $31,225,000 in goodwill related to these transactions.

The operating results include the operating results produced by the first eleven branches for the period from November 1, 2013 to June 30, 2015, for the additional forty branches from December 7, 2013 to June 30, 2015, and for the most recent twenty-three branches from May 3, 2014 to June 30, 2015.

9

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - QUARTER ENDED JUNE 30, 2015 and 2014
(UNAUDITED)



The table below displays the adjusted fair value as of the acquisition date for each major class of assets acquired and liabilities assumed during fiscal year 2014:

 
 
 
 
 
Adjusted Fair Value Recorded by
 
 
Washington Federal
 
 
(In thousands)
 Assets:
 
 
 Cash
 
$
1,776,660

 Loans receivable, net
 
12,881

 Property and equipment, net
 
25,097

 Core deposit intangible
 
11,040

Goodwill
 
31,225

Other assets
 
70

   Total Assets
 
1,856,973

 
 
 
 Liabilities:
 
 
 Customer accounts
 
1,853,798

 Other liabilities
 
3,175

   Total Liabilities
 
1,856,973

 
 
 
 Net assets acquired
 
$

 
 
 




NOTE C – Dividends
On May 29, 2015, the Company paid its 129th consecutive quarterly cash dividend on common stock. Dividends per share were $.13 and $.10 for the quarters ended June 30, 2015 and 2014, respectively. The Company also announced the authorization of an additional 5 million shares that may be repurchased under Washington Federal's share repurchase program in May 2015.
On July 27, 2015, the Company announced its 130th consecutive quarterly cash dividend on common stock of $0.13 per share. The current dividend will be paid on August 21, 2015, to common shareholders of record on August 7, 2015. For the nine months ended June 30, 2015, the Company has repurchased 4.8 million shares or 4.9 percent of the shares that were outstanding at the beginning of the year at an average price of $21.52.


10

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - QUARTER ENDED JUNE 30, 2015 and 2014
(UNAUDITED)


NOTE D – Loans Receivable (excluding Covered Loans)

 
June 30, 2015
 
September 30, 2014
 
(In thousands)
Non-acquired loans
 
 
 
 
 
 
 
  Single-family residential
$
5,549,746

 
60.1
%
 
$
5,560,203

 
64.1
%
  Construction - speculative
181,668

 
2.0

 
140,060

 
1.6

  Construction - custom
375,425

 
4.1

 
385,824

 
4.5

  Land - acquisition & development
87,382

 
0.9

 
77,832

 
0.9

  Land - consumer lot loans
102,495

 
1.1

 
108,623

 
1.3

  Multi-family
1,089,682

 
11.8

 
917,286

 
10.6

  Commercial real estate
808,539

 
8.7

 
591,336

 
6.9

  Commercial & industrial
451,478

 
4.9

 
379,226

 
4.4

  HELOC
122,870

 
1.3

 
116,042

 
1.4

  Consumer
205,932

 
2.2

 
132,590

 
1.5

Total non-acquired loans
8,975,217

 
97.1

 
8,409,022

 
97.2

Non-impaired acquired loans
 
 
 
 
 
 
 
  Single-family residential
12,895

 
0.1

 
11,716

 
0.1

  Construction - speculative

 

 

 

  Construction - custom

 

 

 

  Land - acquisition & development
1,028

 

 
905

 

  Land - consumer lot loans
2,472

 

 
2,507

 

  Multi-family
3,692

 

 
2,999

 

  Commercial real estate
102,089

 
1.1

 
97,898

 
1.1

  Commercial & industrial
57,614

 
0.6

 
51,386

 
0.6

  HELOC
6,414

 
0.1

 
8,274

 
0.1

  Consumer
2,916

 

 
5,670

 
0.1

Total non-impaired acquired loans
189,120

 
1.9

 
181,355

 
2.0

Credit-impaired acquired loans
 
 
 
 
 
 
 
  Single-family residential
6,288

 
0.1

 
325

 

  Construction - speculative

 

 

 

  Land - acquisition & development
1,842

 

 
1,622

 

  Land - consumer lot loans
496

 

 

 

  Multi-family

 

 

 

  Commercial real estate
71,196

 
0.8

 
63,723

 
0.7

  Commercial & industrial
3,881

 

 
3,476

 

  HELOC
8,553

 
0.1

 
10,139

 
0.1

  Consumer
108

 

 
55

 

Total credit-impaired acquired loans
92,364

 
1.0

 
79,340

 
0.8

Total loans
 
 
 
 
 
 
 
   Single-family residential
5,568,929

 
60.3

 
5,572,244

 
64.2

   Construction - speculative
181,668

 
2.0

 
140,060

 
1.6

   Construction - custom
375,425

 
4.1

 
385,824

 
4.5

   Land - acquisition & development
90,252

 
0.9

 
80,359

 
0.9

   Land - consumer lot loans
105,463

 
1.1

 
111,130

 
1.3

   Multi-family
1,093,374

 
11.8

 
920,285

 
10.6

   Commercial real estate
981,824

 
10.6

 
752,957

 
8.7


11

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - QUARTER ENDED JUNE 30, 2015 and 2014
(UNAUDITED)


   Commercial & industrial
512,973

 
5.5

 
434,088

 
5.0

   HELOC
137,837

 
1.5

 
134,455

 
1.6

   Consumer
208,956

 
2.2

 
138,315

 
1.6

Total Loans
9,256,701

 
100
%
 
8,669,717

 
100
%
Less:
 
 
 
 
 
 
 
Allowance for probable losses
105,611

 
 
 
112,347

 
 
Loans in process
438,941

 
 
 
346,172

 
 
Discount on acquired loans
28,399

 
 
 
25,391

 
 
Deferred net origination fees
38,141

 
 
 
37,485

 
 
 
611,092

 
 
 
521,395

 
 
 
$
8,645,609

 
 
 
$
8,148,322

 
 

Changes in the carrying amount and accretable yield for acquired non-impaired and credit-impaired loans (excluding covered loans) for the nine months ended June 30, 2015 and June 30, 2014 were as follows:
June 30, 2015
Acquired Impaired
 
Acquired Non-impaired
 
Accretable
Yield
 
Net Carrying
Amount of
Loans
 
Accretable
Yield
 
Carrying
Amount of
Loans
 
(In thousands)
Balance as of beginning of period
$
32,591

 
$
57,771

 
$
4,254

 
$
177,440

Transfer from covered loans (2)
23,167

 
15,866

 
1,482

 
33,649

Additions

 

 
346

 

Accretion
(11,501
)
 
11,501

 
(2,427
)
 
2,427

Transfers to REO

 
(458
)
 

 

Payments received, net

 
(18,140
)
 

 
(27,556
)
Balance as of end of period
$
44,257

 
$
66,540

 
$
3,655

 
$
185,960

(1) reclassification due to improvements in expected cash flows of the underlying loans
(2) reclassification from covered to non-covered due to expiration of loss share agreement
June 30, 2014
Acquired Impaired
 
Acquired Non-impaired
 
Accretable
Yield
 
Net Carrying
Amount of
Loans
 
Accretable
Yield
 
Carrying
Amount of
Loans
 
(In thousands)
Balance as of beginning of period
$
37,236

 
$
69,718

 
$
4,977

 
$
245,373

Reclassification from nonaccretable balance, net (1)
7,300

 

 

 

Accretion
(8,884
)
 
8,884

 
(606
)
 
606

Transfers to REO

 
(1,188
)
 

 
(4,710
)
Payments received, net

 
(17,616
)
 

 
(48,988
)
Balance as of end of period
$
35,652

 
$
59,798

 
$
4,371

 
$
192,281

(1) reclassification due to improvements in expected cash flows of the underlying loans.

12

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - QUARTER ENDED JUNE 30, 2015 and 2014
(UNAUDITED)


The following table sets forth information regarding non-accrual loans (excluding covered loans) held by the Company as of the dates indicated:
 
 
June 30, 2015
 
September 30, 2014
 
(In thousands)
Non-accrual loans:
 
 
 
 
 
 
 
Single-family residential
$
56,638

 
86.7
%
 
$
74,067

 
84.8
%
Construction - speculative
762

 
1.2

 
1,477

 
1.7

Construction - custom
355

 
0.5

 

 

Land - acquisition & development

 

 
811

 
0.9

Land - consumer lot loans
1,308

 
2.0

 
2,637

 
3.0

Multi-family
786

 
1.2

 
1,742

 
2.0

Commercial real estate
2,852

 
4.4

 
5,106

 
5.8

Commercial & industrial
1,205

 
1.8

 
7

 

HELOC
889

 
1.4

 
795

 
0.9

Consumer
513

 
0.8

 
789

 
0.9

Total non-accrual loans
$
65,308

 
100
%
 
$
87,431

 
100
%

The Company recognized interest income on nonaccrual loans of approximately $5,272,000 in the nine months ended June 30, 2015. Had these loans performed according to their original contract terms, the Company would have recognized interest income of approximately $2,421,000 for the nine months ended June 30, 2015. The recognized interest income may include more than nine months of interest for some of the loans that were brought current.

In addition to the nonaccrual loans reflected in the above table, the Company had $94,346,000 of loans that were less than 90 days delinquent at June 30, 2015 but which it had classified as substandard for one or more reasons.
The following tables provide an analysis of the age of loans (net of LIP and excluding covered loans) in past due status as of June 30, 2015 and September 30, 2014, respectively.

13

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - QUARTER ENDED JUNE 30, 2015 and 2014
(UNAUDITED)


 
June 30, 2015
Amount of Loans
 
Days Delinquent Based on $ Amount of Loans
 
% based
on $
Type of Loan
Net of LIP & Chg.-Offs
 
Current
 
30
 
60
 
90
 
Total
 
 
(In thousands)
Non-acquired loans
 
 
 
 
 
 
 
 
 
 
 
 
 
Single-family residential
$
5,546,941

 
$
5,473,728

 
$
14,525

 
$
8,585

 
$
50,103

 
$
73,213

 
1.32
%
Construction - speculative
117,711

 
117,711

 

 

 

 

 

Construction - custom
204,914

 
204,140

 
310

 
109

 
355

 
774

 
0.38

Land - acquisition & development
72,856

 
72,429

 
427

 

 

 
427

 
0.59

Land - consumer lot loans
102,436

 
99,717

 
595

 
85

 
2,039

 
2,719

 
2.65

Multi-family
1,013,745

 
1,012,704

 

 
421

 
620

 
1,041

 
0.10

Commercial real estate
697,960

 
696,678

 
421

 
57

 
804

 
1,282

 
0.18

Commercial & industrial
451,473

 
451,404

 
69

 

 

 
69

 
0.02

HELOC
122,874

 
121,836

 
401

 
62

 
575

 
1,038

 
0.84

Consumer
205,950

 
205,259

 
519

 
172

 

 
691

 
0.34

Total non-acquired loans
8,536,860

 
8,455,606

 
17,267

 
9,491

 
54,496

 
81,254

 
0.95

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-impaired acquired loans
 
 
 
 
 
 
 
 
 
 
 
 
 
Single-family residential
12,895

 
12,872

 

 

 
23

 
23

 
0.18

Land - acquisition & development
1,028

 
1,028

 

 

 

 

 

Land - consumer lot loans
2,472

 
2,339

 

 
16

 
117

 
133

 
5.38

Multi-family
3,692

 
3,692

 

 

 

 

 

Commercial real estate
101,542

 
101,369

 

 

 
173

 
173

 
0.17

Commercial & industrial
57,612

 
57,574

 

 

 
38

 
38

 
0.07

HELOC
6,414

 
5,973

 
224

 
217

 

 
441

 
6.88

Consumer
2,897

 
2,491

 
48

 

 
358

 
406

 
14.01

Total non-impaired acquired loans
188,552

 
187,338

 
272

 
233

 
709

 
1,214

 
0.64

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit-impaired acquired loans
 
 
 
 
 
 
 
 
 
 
 
 
 
Single-family residential
6,284

 
6,284

 

 

 

 

 

Land - acquisition & development
1,842

 
771

 
203

 

 
868

 
1,071

 
58.14

Land - consumer lot loans
495

 
495

 

 

 

 

 
NM

Commercial real estate
71,189

 
69,448

 
608

 

 
1,133

 
1,741

 
2.45

Commercial & industrial
3,881

 
3,058

 

 

 
823

 
823

 
21.21

HELOC
8,549

 
8,236

 

 

 
313

 
313

 
3.66

Consumer
108

 
108

 

 

 

 

 

Total credit-impaired acquired loans
92,348

 
88,400

 
811

 

 
3,137

 
3,948

 
4.28

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Loans
$
8,817,760

 
$
8,731,344

 
$
18,350

 
$
9,724

 
$
58,342

 
$
86,416

 
0.98
%



14

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - QUARTER ENDED JUNE 30, 2015 and 2014
(UNAUDITED)


September 30, 2014
Amount of Loans
 
Days Delinquent Based on $ Amount of Loans
 
% based
on $
Type of Loan
Net of LIP & Chg.-Offs
 
Current
 
30
 
60
 
90
 
Total
 
 
(In thousands)
Non-acquired loans
 
 
 
 
 
 
 
 
 
 
 
 
 
Single-family residential
$
5,557,753

 
$
5,467,239

 
$
15,926

 
$
9,139

 
$
65,449

 
$
90,514

 
1.63
%
Construction - speculative
87,035

 
87,035

 

 

 

 

 

Construction - custom
192,098

 
191,262

 
836

 

 

 
836

 
0.44

Land - acquisition & development
68,066

 
67,911

 
155

 

 

 
155

 
0.23

Land - consumer lot loans
108,589

 
104,571

 
1,246

 
304

 
2,468

 
4,018

 
3.70

Multi-family
892,196

 
891,372

 
205

 
16

 
603

 
824

 
0.09

Commercial real estate
529,453

 
513,409

 
67

 
15,118

 
859

 
16,044

 
3.03

Commercial & industrial
379,226

 
377,848

 
53

 
1,318

 
7

 
1,378

 
0.36

HELOC
116,262

 
115,262

 
335

 
292

 
373

 
1,000

 
0.86

Consumer
132,686

 
131,642

 
654

 
262

 
128

 
1,044

 
0.79

Total non-acquired loans
8,063,364

 
7,947,551

 
19,477

 
26,449

 
69,887

 
115,813

 
1.44

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-impaired acquired loans
 
 
 
 
 
 
 
 
 
 
 
 
 
Single-family residential
11,716

 
11,693

 

 

 
23

 
23

 
0.20

Land - acquisition & development
905

 
905

 

 

 

 

 

Land - consumer lot loans
2,502

 
2,132

 

 
370

 

 
370

 
14.79

Multi-family
2,999

 
2,999

 

 

 

 

 

Commercial real estate
97,715

 
96,948

 
104

 

 
663

 
767

 
0.78

Commercial & industrial
51,329

 
51,229

 

 
100

 

 
100

 
0.19

HELOC
8,056

 
8,056

 

 

 

 

 

Consumer
5,670

 
4,983

 
22

 
4

 
661

 
687

 
12.12

Total non-impaired acquired loans
180,892

 
178,945

 
126

 
474

 
1,347

 
1,947

 
1.08

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit-impaired acquired loans
 
 
 
 
 
 
 
 
 
 
 
 
 
Single-family residential
325

 
325

 

 

 

 

 

Land - acquisition & development
1,581

 
1,581

 

 

 

 

 

Commercial real estate
63,713

 
61,713

 
152

 
909

 
939

 
2,000

 
3.14

Commercial & industrial
3,477

 
3,470

 
7

 

 

 
7

 
0.20

HELOC
10,138

 
9,641

 

 
75

 
422

 
497

 
4.90

Consumer
54

 
54

 

 

 

 

 

Total credit-impaired acquired loans
79,288

 
76,784

 
159

 
984

 
1,361

 
2,504

 
3.16

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Loans
$
8,323,544

 
$
8,203,280

 
$
19,762

 
$
27,907

 
$
72,595

 
$
120,264

 
1.44
%




15

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - QUARTER ENDED JUNE 30, 2015 and 2014
(UNAUDITED)


Most loans restructured in troubled debt restructurings ("TDRs") are accruing and performing loans where the borrower has proactively approached the Company about modification due to temporary financial difficulties. As of June 30, 2015, 95.9% of the Bank's $321,481,000 in TDRs were classified as performing. 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 between 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. Principal forgiveness is not an available option for restructured loans. As of June 30, 2015, single-family residential loans comprised 85.7% of TDRs.

The Company reserves for restructured loans within its allowance for loan loss methodology by taking into account the following performance indicators: 1) time since modification, 2) current payment status and 3) geographic area.

The following tables provide information related to loans that were restructured during the periods indicated:

 
Quarter Ended June 30,
 
2015
 
2014
 
 
 
Pre-Modification
 
Post-Modification
 
 
 
Pre-Modification
 
Post-Modification
 
 
 
Outstanding
 
Outstanding
 
 
 
Outstanding
 
Outstanding
 
Number of
 
Recorded
 
Recorded
 
Number of
 
Recorded
 
Recorded
 
Contracts
 
Investment
 
Investment