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EX-31.1 - EXHIBIT 31.1 - WASHINGTON FEDERAL INCwafd10-qex3116302016.htm
EX-32 - EXHIBIT 32 - WASHINGTON FEDERAL INCwafd10-qex326302016.htm
EX-31.2 - EXHIBIT 31.2 - WASHINGTON FEDERAL INCwafd10-qex3126302016.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, 2016
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 July 26, 2016
Common stock, $1.00 par value
90,489,424



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, 2016
 
September 30, 2015
 
(In thousands, except share data)
ASSETS
 
 
 
Cash and cash equivalents
$
530,055

 
$
284,049

Available-for-sale securities, at fair value
1,969,869

 
2,380,563

Held-to-maturity securities, at amortized cost
1,492,480

 
1,643,216

Loans receivable, net
9,628,576

 
9,170,634

Interest receivable
36,888

 
40,429

Premises and equipment, net
295,348

 
276,247

Real estate owned
31,682

 
61,098

FHLB and FRB stock
117,205

 
107,198

Bank owned life insurance
206,377

 
102,496

Intangible assets, including goodwill of $291,503
297,537

 
299,358

Federal and state income tax assets, net
16,189

 
14,513

Other assets
199,394

 
188,523

 
$
14,821,600

 
$
14,568,324

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Liabilities
 
 
 
Customer accounts
 
 
 
Transaction deposit accounts
$
5,920,242

 
$
5,820,878

Time deposit accounts
4,658,674

 
4,810,825

 
10,578,916

 
10,631,703

FHLB advances
2,080,000

 
1,830,000

Advance payments by borrowers for taxes and insurance
33,209

 
50,224

Accrued expenses and other liabilities
167,290

 
100,718

 
12,859,415

 
12,612,645

Stockholders’ equity
 
 
 
Common stock, $1.00 par value, 300,000,000 shares authorized; 134,145,522 and 133,695,803 shares issued; 90,226,193 and 92,936,395 shares outstanding
134,145

 
133,696

Paid-in capital
1,653,465

 
1,643,712

Accumulated other comprehensive (loss) income, net of taxes
(15,705
)
 
353

Treasury stock, at cost; 43,919,329 and 40,759,408 shares
(721,884
)
 
(651,836
)
Retained earnings
912,164

 
829,754

 
1,962,185

 
1,955,679

 
$
14,821,600

 
$
14,568,324




SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
3


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

 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands, except share data)
 
(In thousands, except share data)
INTEREST INCOME
 
 
 
 
 
 
 
Loans receivable
$
113,728

 
$
107,250

 
$
339,802

 
$
324,817

Mortgage-backed securities
15,297

 
16,995

 
49,130

 
54,313

Investment securities and cash equivalents
4,710

 
5,055

 
14,990

 
16,084

 
133,735

 
129,300

 
403,922

 
395,214

INTEREST EXPENSE
 
 
 
 
 
 
 
Customer accounts
13,274

 
12,485

 
39,062

 
38,504

FHLB advances and other borrowings
16,221

 
16,250

 
47,426

 
50,082

 
29,495

 
28,735

 
86,488

 
88,586

Net interest income
104,240

 
100,565

 
317,434

 
306,628

Provision (release) for loan losses
(1,650
)
 
(1,932
)
 
(3,150
)
 
(11,381
)
Net interest income after provision (release) for loan losses
105,890

 
102,497

 
320,584

 
318,009

 
 
 
 
 
 
 
 
OTHER INCOME
 
 
 
 
 
 
 
Gain on sale of investment securities

 
9,639

 

 
9,639

Prepayment penalty on long-term debt

 
(7,941
)
 

 
(10,554
)
Loan fee income
1,101

 
1,915

 
3,784

 
6,028

Deposit fee income
5,297

 
5,156

 
16,564

 
16,538

Other income
4,088

 
3,042

 
11,502

 
6,380

 
10,486

 
11,811

 
31,850

 
28,031

 
 
 
 
 
 
 
 
OTHER EXPENSE
 
 
 
 
 
 
 
Compensation and benefits
27,333

 
29,824

 
86,217

 
89,453

Occupancy
8,515

 
8,492

 
26,075

 
24,866

FDIC insurance premiums
2,869

 
2,377

 
8,243

 
5,431

Product delivery
3,822

 
6,175

 
13,639

 
17,222

Information technology
7,669

 
3,783

 
23,832

 
11,695

Other expense
6,097

 
6,068

 
22,034

 
18,975

 
56,305

 
56,719

 
180,040

 
167,642

Gain on real estate owned, net
5,087

 
3,188

 
10,401

 
4,976

Income before income taxes
65,158

 
60,777

 
182,795

 
183,374

Income tax expense
22,154

 
21,727

 
62,970

 
65,556

NET INCOME
$
43,004

 
$
39,050

 
$
119,825

 
$
117,818

 

 


 
 
 
 
PER SHARE DATA
 
 
 
 
 
 
 
Basic earnings per share
$
0.47

 
$
0.41

 
$
1.30

 
$
1.22

Diluted earnings per share
0.47

 
0.41

 
1.30

 
1.22

Dividends paid on common stock per share
0.14

 
0.13

 
0.41

 
0.41

Basic weighted average number of shares outstanding
90,928,847

 
94,466,524

 
91,901,632

 
96,335,777

Diluted weighted average number of shares outstanding
91,468,662

 
94,904,262

 
92,393,644

 
96,726,085


SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
4



WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)

 
Three Months Ended June 30,
 
Nine Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(In thousands)
 
(In thousands)
Net income
$
43,004

 
$
39,050

 
$
119,825

 
$
117,818

 
 
 
 
 
 
 
 
Other comprehensive income (loss) net of tax:
 
 
 
 
 
 
 
Net unrealized gain (loss) on available-for-sale investment securities
(965
)
 
(35,001
)
 
(4,409
)
 
(21,378
)
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)
355

 
9,320

 
1,620

 
4,314

 
(610
)
 
(16,042
)
 
(2,789
)
 
(7,425
)
 
 
 
 
 
 
 
 
Net unrealized gain (loss) on long-term borrowing hedge
(10,290
)
 
5,587

 
(20,978
)
 
(3,646
)
Related tax benefit (expense)
3,782

 
(2,053
)
 
7,709

 
1,340

 
(6,508
)
 
3,534

 
(13,269
)
 
(2,306
)
 
 
 
 
 
 
 
 
Other comprehensive income (loss) net of tax
(7,118
)
 
(12,508
)
 
(16,058
)
 
(9,731
)
Comprehensive income
$
35,886

 
$
26,542

 
$
103,767

 
$
108,087





SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
5



WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED) 
(in thousands)
Common Stock
Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Treasury Stock
Total
Balance at October 1, 2015
$
133,696

$
1,643,712

$
829,754

$
353

$
(651,836
)
$
1,955,679

Net income




119,825





119,825

Other comprehensive income (loss)



(16,058
)

(16,058
)
Dividends on common stock




(37,415
)




(37,415
)
Compensation expense related to common stock options


900







900

Proceeds from exercise of common stock options
300

6,020







6,320

Restricted stock expense
149

2,833







2,982

Treasury stock acquired








(70,048
)
(70,048
)
Balance at June 30, 2016
$
134,145

$
1,653,465

$
912,164

$
(15,705
)
$
(721,884
)
$
1,962,185

 
 
 
 
 
 
 
(in thousands)
Common Stock
Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Treasury Stock
Total
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




SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
6



WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) 
 
Nine Months Ended June 30,
 
2016
 
2015
 
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
 
Net income
$
119,825

 
$
117,818

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization, accretion and restricted stock expense
25,577

 
19,075

Cash received from (paid to) FDIC under loss share
1,826

 
(714
)
Stock option compensation expense
900

 
900

Provision (release) for loan losses
(3,150
)
 
(11,381
)
Loss (gain) on sale of investment securities and real estate owned
(14,536
)
 
(25,817
)
Prepayment penalty from repayment of borrowings

 
10,554

Decrease (increase) in accrued interest receivable
3,541

 
12,487

Decrease (increase) in FDIC loss share receivable

 
1,795

Decrease (increase) in federal and state income tax receivable
7,654

 
10,883

Decrease (increase) in cash surrender value of bank owned life insurance
(3,881
)
 
(1,720
)
Decrease (increase) in other assets
(13,895
)
 
(37,376
)
Increase (decrease) in accrued expenses and other liabilities
45,594

 
(23,738
)
Net cash provided by (used in) operating activities
169,455

 
72,766

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Origination of loans and principal repayments, net
(407,641
)
 
(204,527
)
Loans purchased
(51,646
)
 
(183,406
)
FHLB & FRB stock purchased
(36,347
)
 

FHLB & FRB stock redemption
26,340

 
55,649

Available-for-sale securities purchased
(50,742
)
 
(329,490
)
Principal payments and maturities of available-for-sale securities
452,948

 
502,561

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
146,211

 
207,954

Proceeds from sales of real estate owned
53,573

 
63,077

Purchase of bank owned life insurance
(100,000
)
 
(100,000
)
Premises and equipment purchased and REO improvements
(35,276
)
 
(24,582
)
Net cash provided by (used in) investing activities
(2,580
)
 
(17,397
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Net increase (decrease) in customer accounts
(52,711
)
 
(138,390
)
Proceeds from borrowings
918,000

 

Repayments of borrowings
(668,000
)
 
(210,554
)
Proceeds from exercise of common stock options and related tax benefit
6,320

 
1,676

Dividends paid on common stock
(37,415
)
 
(38,997
)
Treasury stock purchased
(70,048
)
 
(103,049
)
Increase (decrease) in advance payments by borrowers for taxes and insurance
(17,015
)
 
1,652

Net cash provided by (used in) financing activities
79,131

 
(487,662
)
Increase (decrease) in cash and cash equivalents
246,006

 
(432,293
)
Cash and cash equivalents at beginning of period
284,049

 
781,843

Cash and cash equivalents at end of period
$
530,055

 
$
349,550

(CONTINUED)

SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
7



WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) 
 
Nine Months Ended June 30,
 
2016
 
2015
 
(In thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
Non-cash investing activities
 
 
 
Real estate acquired through foreclosure
$
13,147

 
$
25,832

Cash paid during the period for
 
 
 
Interest
86,007

 
88,511

Income taxes
47,289

 
48,096




SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
8



WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(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 mortgage and construction loans, home equity loans, lines of credit, commercial and industrial loans, multi-family and other forms of real estate 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, 2015 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 2015 Annual Report on Form 10-K (“2015 Form 10-K”). 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 2015 Form 10-K. There have not been any material changes in our significant accounting policies compared to those contained in our 2015 Form 10-K disclosure for the year ended September 30, 2015.
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 of $1,125,481,000 and $816,014,000 at June 30, 2016 and September 30, 2015, 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.

NOTE B – New Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. The amendments in this ASU were issued to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments that are not accounted for at fair value through net income, including loans held for investment, held-to- maturity debt securities, trade and other receivables, net investments in leases and other commitments to extend credit held by a reporting entity at each reporting date. The amendments require that financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The ASU eliminates the current framework of recognizing probable incurred losses and instead requires an entity to use its current estimate of all expected credit losses over the contractual life. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial assets.

For purchased financial assets with a more-than-insignificant amount of credit deterioration since origination (“PCD assets”) that are measured at amortized cost, an allowance for expected credit losses is recorded as an adjustment to the cost basis of the asset. Subsequent changes in estimated cash flows would be recorded as an adjustment to the allowance and through the statement of income.

Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses rather than as a direct write-down to the security's cost basis.

The amendments in this ASU are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. For most debt securities, the transition approach requires a cumulative-effect adjustment to the statement of financial position as of the beginning of the first reporting period the guidance is effective. For other-than-temporarily impaired

9

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


debt securities and PCD assets, the guidance will be applied prospectively. The Company is currently evaluating the provisions of this ASU to determine the impact the new standard will have on the Company's consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation- Improvements to Employee Share-Based Payment Accounting, which involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under the guidance, income tax benefits and deficiencies are to be recognized as income tax expense or benefit in the income statement and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity should also recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. In regards to forfeitures, the entity may make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. This ASU is effective for fiscal years beginning after December 15, 2016 including interim periods within that reporting period; however, early adoption is permitted. The Company is currently evaluating the guidance to determine its adoption method and does not expect this guidance to have a material impact on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The amendments require lessees to recognize a lease liability, which is a lessee's obligation to make lease payments arising from a lease, and a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. The guidance also simplifies the accounting for sale and leaseback transactions. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently evaluating the provisions of this ASU to determine the impact the new standard will have on the Company's consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, to require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments in this ASU also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. This ASU is effective for fiscal years beginning after December 15, 2017 including interim periods within that reporting period. The Company does not expect this guidance to have a material impact on its consolidated financial statements.

In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments, which will require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same period’s financial statements, the effect on earnings as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition, an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments in ASU 2015-16 are effective for years beginning after December 15, 2015. Early adoption is permitted for reporting periods for which financial statements have not been issued. The Company does not expect this guidance to have a material impact on its consolidated financial statements.

In April 2015, the FASB issued ASU 2015-05, Customer’s Accounting for Fees Paid in Cloud Computing Arrangement. The ASU was issued to clarify a customer's accounting for fees paid in a cloud computing arrangement. The amendments provide guidance to customers in determining whether a cloud computing arrangement includes a software license that should be accounted for as internal-use software. If the arrangement does not contain a software license, it would be accounted for as a service contract. The guidance in this ASU is effective for interim and annual periods beginning after December 15, 2015 and can be adopted either (1) prospectively to all arrangements entered into or materially modified after the effective date or (2) retrospectively. The Company does not expect this guidance to have a material impact on its consolidated financial statements.

10

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance in this update supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the codification. For public companies, this update was to be effective for interim and annual periods beginning after December 15, 2016. However, in August 2015, the FASB issued ASU 2015-14, which delayed the effective date of ASU 2014-09 by one year and permits companies to voluntarily adopt the new standard as of the original effective date. The Company does not expect this guidance to have a material impact on its consolidated financial statements.

NOTE C – Dividends and Share Repurchases

On May 13, 2016, the Company paid a dividend on common stock of $0.14 per share. This dividend was the 133rd consecutive quarterly cash dividend paid on common stock. Dividends per share were $0.14 and $0.13 for the quarters ended June 30, 2016 and 2015, respectively. On July 25, 2016, the Company declared a dividend on common stock of $0.14 per share, which represents its 134th consecutive quarterly cash dividend. The dividend will be paid on August 19, 2016 to common shareholders of record on August 5, 2016.

For the three months ended June 30, 2016, the Company repurchased 1,097,397 shares at an average price of $23.33. For the three months ended June 30, 2015, the Company repurchased 1,171,662 shares at an average price of $21.93. As of June 30, 2016, there are 1,041,309 remaining shares authorized to be repurchased under the current Board approved program.

NOTE D – Loans Receivable

The following table is a summary of loans receivable.
 
June 30, 2016
 
September 30, 2015
 
(In thousands)
 
(In thousands)
Non-Acquired loans
 
 
 
 
 
   Single-family residential
$
5,593,018

52.9
%
 
$
5,651,845

57.6
%
   Construction
1,016,305

9.6

 
200,509

2.0

   Construction - custom
409,116

3.9

 
396,307

4.0

   Land - acquisition & development
101,849

1.0

 
94,208

1.0

   Land - consumer lot loans
101,731

1.0

 
103,989

1.1

   Multi-family
1,094,736

10.3

 
1,125,722

11.6

   Commercial real estate
886,957

8.4

 
986,270

10.0

   Commercial & industrial
810,442

7.7

 
612,836

6.2

   HELOC
134,735

1.3

 
127,646

1.3

   Consumer
154,261

1.4

 
194,655

2.0

Total non-acquired loans
10,303,150

97.5
%
 
9,493,987

96.8
%
Acquired loans
140,369

1.3

 
166,293

1.6

Credit impaired acquired loans
96,491

0.9

 
87,081

0.9

Covered loans
32,191

0.3

 
75,909

0.7

Total gross loans
10,572,201

100.0
%
 
9,823,270

100.0
%
   Less:
 
 
 
 
 
      Allowance for loan losses
111,016

 
 
106,829

 
      Loans in process
780,721

 
 
476,796

 
      Discount on acquired loans
14,775

 
 
30,095

 
      Deferred net origination fees
37,113

 
 
38,916

 
Total loan contra accounts
943,625

 
 
652,636

 
Net Loans
$
9,628,576

 
 
$
9,170,634

 
 
 
 
 
 
 


11

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



The following table sets forth information regarding non-accrual loans.
 
 
June 30, 2016
 
September 30, 2015
 
(In thousands)
Non-accrual loans:
 
 
 
 
 
 
 
Single-family residential
$
36,707

 
77.5
%
 
$
59,074

 
87.1
%
Construction

 

 
754

 
1.1

Construction - custom
506

 
1.1

 
732

 
1.1

Land - acquisition & development
427

 
0.9

 

 

Land - consumer lot loans
1,105

 
2.3

 
1,273

 
1.9

Multi-family
1,238

 
2.6

 
2,558

 
3.8

Commercial real estate
6,297

 
13.3

 
2,176

 
3.2

Commercial & industrial
521

 
1.1

 

 

HELOC
548

 
1.2

 
563

 
0.8

Consumer

 

 
680

 
1.0

Total non-accrual loans
$
47,349

 
100
%
 
$
67,810

 
100
%

The Company recognized interest income on nonaccrual loans of approximately $4,100,000 in the nine months ended June 30, 2016. Had these loans performed according to their original contract terms, the Company would have recognized interest income of approximately $1,865,000 for the nine months ended June 30, 2016. Interest income actually recognized during the nine months ended June 30, 2016 is higher because of loans that were brought current or paid off.
The following tables provide details regarding delinquent loans.
 
June 30, 2016
Loans Receivable
 
Days Delinquent Based on $ Amount of Loans
 
% based
on $
Type of Loan
Net of Loans In Process
 
Current
 
30
 
60
 
90
 
Total
 
 
(In thousands)
 
 
Non-acquired loans
 
 
 
 
 
 
 
 
 
 
 
 
 
Single-Family Residential
$
5,596,644

 
$
5,542,000

 
$
14,268

 
$
6,679

 
$
33,697

 
$
54,644

 
0.98
%
Construction
442,810

 
442,810

 

 

 

 

 

Construction - Custom
213,465

 
212,690

 
110

 
159

 
506

 
775

 
0.36

Land - Acquisition & Development
86,243

 
85,775

 

 

 
468

 
468

 
0.54

Land - Consumer Lot Loans
102,248

 
100,304

 
738

 
101

 
1,105

 
1,944

 
1.90

Multi-Family
1,095,174

 
1,094,284

 
956

 

 

 
956

 
0.09

Commercial Real Estate
886,552

 
884,644

 
217

 
1,443

 
123

 
1,783

 
0.20

Commercial & Industrial
811,502

 
811,486

 

 
75

 

 
75

 
0.01

HELOC
134,151

 
133,236

 
297

 
70

 
548

 
915

 
0.68

Consumer
153,640

 
152,874

 
385

 
274

 
107

 
766

 
0.50

 
9,522,429

 
9,460,103

 
16,971

 
8,801

 
36,554

 
62,326

 
0.65

Acquired loans
140,369

 
137,107

 
265

 
529

 
2,468

 
3,262

 
2.32

Credit impaired acquired loans
96,491

 
91,168

 

 

 
5,323

 
5,323

 
5.52

Covered loans
32,191

 
31,465

 
417

 
2

 
307

 
726

 
2.26

Total Loans
$
9,791,480

 
$
9,719,843

 
$
17,653

 
$
9,332

 
$
44,652

 
$
71,637

 
0.73
%
Delinquency %
 
 
99.27%
 
0.18%
 
0.10%
 
0.46%
 
0.73%
 
 



12

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


September 30, 2015
Loans Receivable
 
Days Delinquent Based on $ Amount of Loans
 
% based
on $
Type of Loan
Net of Loans In Process
 
Current
 
30
 
60
 
90
 
Total
 
 
(In thousands)
 
 
Non-acquired loans
 
 
 
 
 
 
 
 
 
 
 
 
 
Single-Family Residential
$
5,655,928

 
$
5,590,673

 
$
17,305

 
$
7,757

 
$
40,193

 
$
65,255

 
1.15
%
Construction
130,121

 
130,121

 

 

 

 

 

Construction - Custom
205,692

 
204,168

 
791

 
270

 
463

 
1,524

 
0.74

Land - Acquisition & Development
75,661

 
74,737

 
406

 

 
518

 
924

 
1.22

Land - Consumer Lot Loans
104,494

 
102,045

 
689

 
399

 
1,361

 
2,449

 
2.34

Multi-Family
1,068,038

 
1,065,667

 
259

 
454

 
1,658

 
2,371

 
0.22

Commercial Real Estate
893,072

 
892,180

 
131

 

 
761

 
892

 
0.10

Commercial & Industrial
617,545

 
616,602

 
93

 
27

 
823

 
943

 
0.15

HELOC
127,648

 
127,196

 
174

 
27

 
251

 
452

 
0.35

Consumer
194,977

 
194,259

 
493

 
170

 
55

 
718

 
0.37

 
9,073,176

 
8,997,648

 
20,341

 
9,104

 
46,083

 
75,528

 
0.83

Acquired loans
57,682

 
56,559

 
356

 

 
767

 
1,123

 
1.95

Credit impaired acquired loans
139,726

 
138,940

 
243

 
4

 
539

 
786

 
0.56

Covered loans
75,890

 
70,729

 
272

 
90

 
4,799

 
5,161

 
6.80

Total Loans
$
9,346,474

 
$
9,263,876

 
$
21,212

 
$
9,198

 
$
52,188

 
$
82,598

 
0.88
%
Delinquency %
 
 
99.12%
 
0.23%
 
0.10%
 
0.56%
 
0.88%
 
 

The percentage of total delinquent loans decreased from 0.88% as of September 30, 2015 to 0.73% as of June 30, 2016 and there are no loans greater than 90 days delinquent and still accruing interest as of either date.


13

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


The following tables provide information related to loans that were restructured in a troubled debt restructuring ("TDR") during the periods presented:

 
Three Months Ended June 30,
 
2016
 
2015
 
 
 
Pre-Modification
 
Post-Modification
 
 
 
Pre-Modification
 
Post-Modification
 
 
 
Outstanding
 
Outstanding
 
 
 
Outstanding
 
Outstanding
 
Number of
 
Recorded
 
Recorded
 
Number of
 
Recorded
 
Recorded
 
Contracts
 
Investment
 
Investment
 
Contracts
 
Investment
 
Investment
 
 
 
(In thousands)
 
 
 
(In thousands)
Troubled Debt Restructurings:
 
 
 
 
 
 
 
 
 
 
 
   Single-family residential
7

 
$
1,492

 
$
1,492

 
8

 
$
1,611

 
$
1,611

   Land - consumer lot loans

 

 

 
2

 
203

 
203

   Commercial real estate
2

 
1,558

 
1,558

 

 

 

 
9

 
$
3,050

 
$
3,050

 
10

 
$
1,814

 
$
1,814

 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended June 30,
 
2016
 
2015
 
 
 
Pre-Modification
 
Post-Modification
 
 
 
Pre-Modification
 
Post-Modification
 
 
 
Outstanding
 
Outstanding
 
 
 
Outstanding
 
Outstanding
 
Number of
 
Recorded
 
Recorded
 
Number of
 
Recorded
 
Recorded
 
Contracts
 
Investment
 
Investment
 
Contracts
 
Investment
 
Investment
 
 
 
(In thousands)
 
 
 
(In thousands)
Troubled Debt Restructurings:
 
 
 
 
 
 
 
 
 
 
 
   Single-family residential
17

 
$
3,322

 
$
3,322

 
57

 
$
13,875

 
$
13,875

   Construction

 

 

 
2

 
718

 
718

   Construction - custom

 

 

 
2

 
532

 
532

   Land - consumer lot loans

 

 

 
6

 
923

 
923

   Commercial real estate
7

 
2,523

 
2,523

 
3

 
3,175

 
3,175

   Consumer

 

 

 
1

 
85

 
85

 
24

 
$
5,845

 
$
5,845

 
71

 
$
19,308

 
$
19,308


The following tables provide information on payment defaults occurring during the periods presented where the loan had been modified in a TDR within 12 months of the payment default.

14

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


 
Three Months Ended June 30,
 
2016
 
2015
 
Number of
 
Recorded
 
Number of
 
Recorded
 
Contracts
 
Investment
 
Contracts
 
Investment
 
(In thousands)
 
(In thousands)
TDRs That Subsequently Defaulted:
 
 
 
 
 
 
 
   Single-family residential
3

 
$
1,570

 
9

 
$
1,594

   Construction
1

 
279

 

 

   Land - consumer lot loans
2

 
204

 
2

 
301

   Commercial real estate
1

 
174

 

 

 
7

 
$
2,227

 
11

 
$
1,895

 
 
 
 
 
 
 
 
 
Nine Months Ended June 30,
 
2016
 
2015
 
Number of
 
Recorded
 
Number of
 
Recorded
 
Contracts
 
Investment
 
Contracts
 
Investment
 
(In thousands)
 
(In thousands)
TDRs That Subsequently Defaulted:
 
 
 
 
 
 
 
   Single-family residential
14

 
$
3,108

 
19

 
$
3,329

   Construction
1

 
279

 

 

   Land - consumer lot loans
4

 
498

 
7

 
991

   Commercial real estate
2

 
326

 

 

 
21

 
$
4,211

 
26

 
$
4,320


Most loans restructured in 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, 2016, 96.0% of the Company's $258,135,000 in TDRs were classified as performing. Each request for modification is individually evaluated for merit and likelihood of success. The concession granted in a loan modification is typically a payment reduction through a rate reduction of between 100 to 200 basis points for a specific term, usually six to twenty four 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, 2016, single-family residential loans comprised 86.7% 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 table shows the changes in accretable yield for acquired impaired loans and acquired non-impaired loans (including covered loans).

15

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


    
 
Nine Months Ended June 30, 2016
 
Year Ended September 30, 2015
 
Acquired Impaired
 
Acquired Non-impaired
 
Acquired Impaired
 
Acquired Non-impaired
 
Accretable
Yield
 
Carrying
Amount of
Loans
 
Accretable
Yield
 
Carrying
Amount of
Loans
 
Accretable
Yield
 
Carrying
Amount of
Loans
 
Accretable
Yield
 
Carrying
Amount of
Loans
 
(In thousands)
 
(In thousands)
Beginning balance
$
72,705

 
$
111,300

 
$
7,204

 
$
187,080

 
$
97,125

 
$
135,826

 
$
14,513

 
$
275,862

Additions

 

 

 

 

 

 

 

Net reclassification from non-accretable
4,867

 

 

 

 
6,307

 

 
346

 

Accretion
(17,119
)
 
17,119

 
(2,210
)
 
2,210

 
(30,727
)
 
30,727

 
(7,655
)
 
7,655

Transfers to REO

 
(175
)
 

 

 

 
(2,975
)
 

 
(150
)
Payments received, net

 
(31,823
)
 

 
(31,439
)
 

 
(52,278
)
 

 
(96,287
)
Ending Balance
$
60,453

 
$
96,421

 
$
4,994

 
$
157,851

 
$
72,705

 
$
111,300

 
$
7,204

 
$
187,080


The excess of cash flows expected to be collected over the initial fair value of acquired impaired loans is referred to as the accretable yield and this amount is accreted into interest income over the estimated life of the acquired loans using the effective interest method. Other adjustments to the accretable yield include changes in the estimated remaining life of the acquired loans, changes in expected cash flows and changes in the respective indices for acquired loans with variable interest rates. Acquired loans are included in non-performing assets and subject to the general loss reserving methodology if the purchase discount is no longer sufficient to cover expected losses.

Covered loans were $32,191,000 at June 30, 2016 compared to $75,909,000 as of September 30, 2015, the decrease being attributable to FDIC loss share coverage on commercial loans from the former Home Valley Bank that expired after September 30, 2015. The FDIC loss share coverage for single family residential loans will continue for another five years. The remaining portfolio of covered loans is expected to continue to decline over time, absent another FDIC assisted transaction.

The following table shows activity for the FDIC indemnification asset:
 
 
Nine Months Ended June 30, 2016
 
Year Ended September 30, 2015
 
(In thousands)
Balance at beginning of period
$
16,275

 
$
36,860

Additions/Adjustments

 
(1,795
)
Payments received
(1,827
)
 
(720
)
Amortization
(1,385
)
 
(18,588
)
Accretion
187

 
518

Balance at end of period
$
13,250

 
$
16,275



16

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


NOTE E – Allowance for Losses on Loans
The following tables summarize the activity in the allowance for loan losses. 
Three Months Ended June 30, 2016
Beginning
Allowance
 
Charge-offs
 
Recoveries
 
Provision &
Transfers
 
Ending
Allowance
 
(In thousands)
Single-family residential
$
41,828

 
$
(634
)
 
$
162

 
$
(675
)
 
$
40,681

Construction
15,726

 

 
207

 
1,729

 
17,662

Construction - custom
1,022

 

 
60

 
(54
)
 
1,028

Land - acquisition & development
7,252

 
(31
)
 
2,741

 
(3,240
)
 
6,722

Land - consumer lot loans
2,466

 
(26
)
 
5

 
59

 
2,504

Multi-family
6,784

 

 

 
137

 
6,921

Commercial real estate
7,783

 

 
454

 
(94
)
 
8,143

Commercial & industrial
23,824

 
(150
)
 
6

 
716

 
24,396

HELOC
828

 
(27
)
 

 
55

 
856

Consumer
2,406

 
(307
)
 
437

 
(433
)
 
2,103

 
$
109,919

 
$
(1,175
)
 
$
4,072

 
$
(1,800
)
 
$
111,016

Three Months Ended June 30, 2015
Beginning
Allowance
 
Charge-offs
 
Recoveries
 
Provision &
Transfers
 
Ending
Allowance
 
(In thousands)
Single-family residential
$
54,762

 
$
(1,698
)
 
$
3,878

 
$
(4,938
)
 
$
52,004

Construction
5,445

 

 

 
488

 
5,933

Construction - custom
968

 

 

 
17

 
985

Land - acquisition & development
7,405

 

 
1

 
(1,634
)
 
5,772

Land - consumer lot loans
3,035

 
(276
)
 
187

 
53

 
2,999

Multi-family
4,673

 

 

 
362

 
5,035

Commercial real estate
6,734

 
(1,592
)
 
230

 
1,896

 
7,268

Commercial & industrial
21,146

 
(2,106
)
 
896

 
1,726

 
21,662

HELOC
850

 
(26
)
 
1

 
39

 
864

Consumer
3,305

 
(853
)
 
1,045

 
(408
)
 
3,089

 
$
108,323

 
$
(6,551
)
 
$
6,238

 
$
(2,399
)
 
$
105,611


17

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


Nine Months Ended June 30, 2016
Beginning
Allowance
 
Charge-offs
 
Recoveries
 
Provision &
Transfers
 
Ending
Allowance
 
(In thousands)
Single-family residential
$
47,347

 
$
(2,800
)
 
$
2,739

 
$
(6,605
)
 
$
40,681

Construction
6,680

 

 
357

 
10,625

 
17,662

Construction - custom
990

 
(60
)
 
60

 
38

 
1,028

Land - acquisition & development
5,781

 
(31
)
 
6,148

 
(5,176
)
 
6,722

Land - consumer lot loans
2,946

 
(701
)
 
5

 
254

 
2,504

Multi-family
5,304

 

 

 
1,617

 
6,921

Commercial real estate
8,960

 
(32
)
 
1,569

 
(2,354
)
 
8,143

Commercial & industrial
24,980

 
(729
)
 
597

 
(452
)
 
24,396

HELOC
902

 
(54
)
 
21

 
(13