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EX-32 - EXHIBIT 32 - WASHINGTON FEDERAL INCwafd10-qex3212312018.htm
EX-31.2 - EXHIBIT 31.2 - WASHINGTON FEDERAL INCwafd10-qex31212312018.htm
EX-31.1 - EXHIBIT 31.1 - WASHINGTON FEDERAL INCwafd10-qex31112312018.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 December 31, 2018
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 ("Exchange Act") 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, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
x
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
o
Emerging growth company
o
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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:
January 24, 2019
Common stock, $1.00 par value
81,112,469



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)





 
December 31, 2018
 
September 30, 2018
 
(In thousands, except share data)
ASSETS
 
 
 
Cash and cash equivalents
$
283,375

 
$
268,650

Available-for-sale securities, at fair value
1,451,340

 
1,314,957

Held-to-maturity securities, at amortized cost
1,586,815

 
1,625,420

Loans receivable, net of allowance for loan losses of $131,165 and $129,257
11,700,239

 
11,477,081

Interest receivable
48,207

 
47,295

Premises and equipment, net
276,683

 
267,995

Real estate owned
8,171

 
11,298

FHLB and FRB stock
135,590

 
127,190

Bank owned life insurance
217,751

 
216,254

Intangible assets, including goodwill of $301,368 and $301,368
310,776

 
311,286

Federal and state income tax assets, net

 
1,804

Other assets
169,179

 
196,494

 
$
16,188,126

 
$
15,865,724

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Liabilities
 
 
 
Customer accounts
 
 
 
Transaction deposit accounts
$
6,744,346

 
$
6,582,343

Time deposit accounts
4,817,346

 
4,804,803

 
11,561,692

 
11,387,146

FHLB advances
2,540,000

 
2,330,000

Advance payments by borrowers for taxes and insurance
21,165

 
57,417

Federal and state income tax assets, net
7,388

 

Accrued expenses and other liabilities
74,792

 
94,253

 
14,205,037

 
13,868,816

Stockholders’ equity
 
 
 
Common stock, $1.00 par value, 300,000,000 shares authorized; 135,496,280 and 135,343,417 shares issued; 81,123,582 and 82,710,911 shares outstanding
135,496

 
135,343

Additional paid-in capital
1,668,666

 
1,666,609

Accumulated other comprehensive income (loss), net of taxes
2,891

 
8,294

Treasury stock, at cost; 54,372,698 and 52,632,506 shares
(1,051,239
)
 
(1,002,309
)
Retained earnings
1,227,275

 
1,188,971

 
1,983,089

 
1,996,908

 
$
16,188,126

 
$
15,865,724




SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
3


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

 
Three Months Ended December 31,
 
2018
 
2017
 
(In thousands, except share data)
INTEREST INCOME
 
 
 
Loans receivable
$
137,065

 
$
124,511

Mortgage-backed securities
19,192

 
16,899

Investment securities and cash equivalents
6,365

 
4,370

 
162,622

 
145,780

INTEREST EXPENSE
 
 
 
Customer accounts
26,579

 
14,638

FHLB advances
16,891

 
15,407

 
43,470

 
30,045

Net interest income
119,152

 
115,735

Provision (release) for loan losses
(500
)
 

Net interest income after provision (release) for loan losses
119,652

 
115,735

 
 
 
 
OTHER INCOME
 
 
 
Gain (loss) on sale of investment securities
(9
)
 

FDIC loss share valuation adjustments

 
(8,550
)
Loan fee income
970

 
1,035

Deposit fee income
6,243

 
6,686

Other income
11,805

 
7,624

 
19,009

 
6,795

 
 
 
 
OTHER EXPENSE
 
 
 
Compensation and benefits
33,883

 
29,619

Occupancy
9,268

 
8,671

FDIC insurance premiums
2,862

 
2,820

Product delivery
4,021

 
3,956

Information technology
9,040

 
7,929

Other expense
12,598

 
8,946

 
71,672

 
61,941

Gain (loss) on real estate owned, net
320

 
46

Income before income taxes
67,309

 
60,635

Income tax expense
14,367

 
8,965

NET INCOME
$
52,942

 
$
51,670

 

 


PER SHARE DATA
 
 
 
Basic earnings per share
$
0.65

 
$
0.59

Diluted earnings per share
0.65

 
0.59

Dividends paid on common stock per share
0.18

 
0.15

Basic weighted average number of shares outstanding
81,791,852

 
86,938,095

Diluted weighted average number of shares outstanding
81,831,478

 
87,082,499


SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
4



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

 
Three Months Ended December 31,
 
2018
 
2017
 
(In thousands)
Net income
$
52,942

 
$
51,670

 
 
 
 
Other comprehensive income (loss) net of tax:
 
 
 
Net unrealized gain (loss) on available-for-sale investment securities
3,515

 
(1,964
)
Reclassification adjustment of net gain (loss) from sale of available-for-sale securities included in net income
(9
)
 

Related tax benefit (expense)
(799
)
 
722

 
2,707

 
(1,242
)
 
 
 
 
Net unrealized gain (loss) on cash flow hedges of borrowings
(10,499
)
 
6,690

Related tax benefit (expense)
2,389

 
(2,459
)
 
(8,110
)
 
4,231

 
 
 
 
Other comprehensive income (loss) net of tax
(5,403
)
 
2,989

Comprehensive income
$
47,539

 
$
54,659





SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
5



WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED) 
(in thousands)
Common Stock
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Treasury Stock
Total
Balance at October 1, 2018
$
135,343

$
1,666,609

$
1,188,971

$
8,294

$
(1,002,309
)
$
1,996,908

Net income


52,942



52,942

Other comprehensive income (loss)



(5,403
)

(5,403
)
Dividends on common stock


(14,638
)


(14,638
)
Proceeds from stock-based awards
17

442




459

Stock-based compensation expense
97

1,654




1,751

Exercise of stock warrants
39

(39
)
 
 
 

Treasury stock acquired




(48,930
)
(48,930
)
Balance at December 31, 2018
$
135,496

$
1,668,666

$
1,227,275

$
2,891

$
(1,051,239
)
$
1,983,089

 
 
 
 
 
 
 
(in thousands)
Common Stock
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Treasury Stock
Total
Balance at October 1, 2017
$
134,958

$
1,660,885

$
1,042,890

$
5,015

$
(838,060
)
$
2,005,688

Net income


51,670



51,670

Other comprehensive income (loss)



2,989


2,989

Dividends on common stock


(13,043
)


(13,043
)
Proceeds from stock-based awards
14

272




286

Stock-based compensation expense
194

818




1,012

Exercise of stock warrants
109

(109
)




Treasury stock acquired




(38,984
)
(38,984
)
Balance at December 31, 2017
$
135,275

$
1,661,866

$
1,081,517

$
8,004

$
(877,044
)
$
2,009,618




SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
6



WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) 
 
Three Months Ended December 31,
 
2018
 
2017
 
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
 
Net income
$
52,942

 
$
51,670

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization, and accretion expense, net
7,388

 
15,273

Stock-based compensation expense
1,751

 
1,012

Provision (release) for loan losses
(500
)
 

Loss (gain) on sale of investment securities
9

 

Decrease (increase) in accrued interest receivable
(912
)
 
(503
)
Decrease (increase) in federal and state income tax receivable
1,804

 

Decrease (increase) in cash surrender value of bank owned life insurance
(1,497
)
 
(1,571
)
Gain on bank owned life insurance

 
(2,416
)
Net realized (gain) loss on sales of premises, equipment, and real estate owned
(7,054
)
 
(241
)
Decrease (increase) in other assets
16,816

 
(7,715
)
Increase (decrease) in accrued expenses and other liabilities
(10,482
)
 
2,595

Net cash provided by (used in) operating activities
60,265

 
58,104

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Origination of loans and principal repayments, net
(222,257
)
 
(80,089
)
Loans purchased

 
(143,605
)
FHLB & FRB stock purchased
(164,200
)
 
(123,600
)
FHLB & FRB stock redeemed
155,800

 
116,000

Available-for-sale securities purchased
(172,076
)
 
(40,884
)
Principal payments and maturities of available-for-sale securities
38,118

 
58,261

Proceeds from sales of available-for-sale securities
491

 

Held-to-maturity securities purchased

 
(170,836
)
Principal payments and maturities of held-to-maturity securities
37,736

 
50,653

Proceeds from sales of real estate owned
3,915

 
3,440

Proceeds from settlement of bank owned life insurance

 
3,484

Proceeds from sales of premises and equipment
10,233

 
1

Premises and equipment purchased and REO improvements
(18,562
)
 
(6,485
)
Net cash provided by (used in) investing activities
(330,802
)
 
(333,660
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Net increase (decrease) in customer accounts
174,623

 
166,647

Proceeds from borrowings
4,105,000

 
3,090,000

Repayments of borrowings
(3,895,000
)
 
(2,900,000
)
Proceeds from stock-based awards
459

 
286

Dividends paid on common stock
(14,638
)
 
(13,043
)
Treasury stock purchased
(48,930
)
 
(38,984
)
Increase (decrease) in borrower advances related to taxes and insurance, net
(36,252
)
 
(32,707
)
Net cash provided by (used in) financing activities
285,262

 
272,199

Increase (decrease) in cash and cash equivalents
14,725

 
(3,357
)
Cash, cash equivalents and restricted cash at beginning of period
268,650

 
313,070

Cash, cash equivalents and restricted cash at end of period
$
283,375

 
$
309,713

(CONTINUED)

SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
7



WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
Three Months Ended December 31,
 
2018
 
2017
 
(In thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
Non-cash investing activities
 
 
 
Real estate acquired through foreclosure
$
116

 
$
773

Non-cash financing activities
 
 
 
Stock issued upon exercise of warrants
1,082

 
3,761

Cash paid during the period for
 
 
 
Interest
44,177

 
29,986

Income taxes

 
5,225




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. (the "Company") is a Washington corporation headquartered in Seattle, Washington. The Company is a bank holding company that conducts its operations through its national bank subsidiary, Washington Federal, National Association (the "Bank"). The Bank is principally engaged in the business of attracting deposits from businesses and the general public and investing these funds, together with borrowings and other funds, in commercial and consumer 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 Company has prepared the consolidated unaudited interim financial statements included in this report. 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. Certain amounts in the financial statements from prior periods have been reclassified to conform to the current financial statement presentation.

The information included in this Form 10-Q should be read in conjunction with the financial statements and related notes in the Company's 2018 Annual Report on Form 10-K (“2018 Annual Financial Statements”). 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 2018 Annual Financial Statements. There have not been any material changes in the Company's significant accounting policies compared to those contained in its 2018 Annual Financial Statements for the year ended September 30, 2018.

Restricted Cash Balances - Based on the level of daily average deposits, the Company is currently not required to maintain cash reserve balances with the Federal Reserve Bank. As of December 31, 2018 and September 30, 2018, the Company pledged cash collateral related to derivative contracts of $18,000,000 and $18,000,000, respectively.

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 $2,116,196,000 and $2,180,162,000 at December 31, 2018 and September 30, 2018, 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 August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The amendments also require the entity to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement, including reasonably certain renewal periods. The amendments in the ASU are effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. The Company is assessing the impact that this guidance will have on its consolidated financial statements.

In August 2018, the FASB issued ASU No.2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU adds, eliminates, and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The ASU is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. Entities are also allowed to elect early adoption of the eliminated or modified disclosure requirements and delay adoption of the added disclosure requirements until their effective

9

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


date. As the ASU only revises disclosure requirements, this guidance will not have a material impact on the Company's consolidated financial statements.

In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842) - Targeted Improvements to provide entities with relief from the costs of implementing certain aspects of the new leasing standard, ASU No. 2016-02. Specifically, under the amendments in ASU 2018-11: (1) entities may elect not to recast the comparative periods presented when transitioning to the new leasing standard, and (2) lessors may elect to not separate non-lease components from leases when certain conditions are met. The amendments have the same effective date as ASU 2016-02 (October 1, 2019 for the Company). The Company expects to elect both transition options. ASU 2018-11 is not expected to have a material impact on the Company's consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The ASU expands and refines hedge accounting for both financial and non-financial risk components, aligns the recognition and presentation of the effects of hedging instruments and hedge items in the financial statements, and includes certain targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness. The effective date of the new standard for public companies is for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition with a cumulative effect adjustment recorded to opening retained earnings as of the initial adoption date. The Company early adopted this ASU beginning October 1, 2018. The adoption did not result in a cumulative effect adjustment to the opening balance of retained earnings and accumulated other comprehensive income. See Note G Derivatives and Hedging Activities for additional information.

In March 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities. The ASU shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Effective October 1, 2018, the Company early adopted this ASU and it did not have a material impact on its consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets. The ASU clarifies that a financial asset is within the scope of Subtopic 610-20 if it meets the definition of an in substance nonfinancial asset. The amendments also define the term in substance nonfinancial asset. The amendments clarify that nonfinancial assets within the scope of Subtopic 610-20 may include nonfinancial assets transferred within a legal entity to a counterparty. A contract that includes the transfer of ownership interests in one or more consolidated subsidiaries is within the scope of Subtopic 610-20 if substantially all of the fair value of the assets that are promised to the counterparty in a contract is concentrated in nonfinancial assets. The amendments clarify that an entity should identify each distinct nonfinancial asset or in substance nonfinancial asset promised to a counterparty and derecognize each asset when a counterparty obtains control of it. The ASU is effective for public business entities for annual periods beginning after December 15, 2017, and interim periods therein. Entities may use either a full or modified retrospective approach to adopt the ASU. Effective October 1, 2018, the Company adopted this ASU and it did not have a material impact on its consolidated financial statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash: a Consensus of the FASB Emerging Issues Task Force. This ASU requires a company’s cash flow statement to explain the changes during a reporting period of the totals for cash, cash equivalents, restricted cash, and restricted cash equivalents. Additionally, amounts for restricted cash and restricted cash equivalents are to be included with cash and cash equivalents if the cash flow statement includes a reconciliation of the total cash balances for a reporting period. This ASU is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2017, with early application permitted. Effective October 1, 2018, the Company adopted this ASU and applied the retrospective transition method to each period presented. The Company does not present restricted cash as a separate line item in the statement of financial position, therefore, there was no change to the presentation of cash on the statement of cash flows. The nature and amount of restricted cash is shown in Note A, Summary of Significant Accounting Policies.

10

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



In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments. The amendments in this ASU address eight specific cash flow issues with the objective of reducing diversity in practice. The specific issues identified include: debt prepayments or extinguishment costs; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies ("BOLI")); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period; however, early adoption is permitted. Effective October 1, 2018, the Company adopted this ASU and applied the retrospective transition method to each period presented. The Company previously classified proceeds from the settlement of BOLI policies in the manner required by the ASU so there was no change to the consolidated financial statements.

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 debt securities and PCD assets, the guidance will be applied prospectively. While the Company is currently in the process of evaluating the impact of the amended guidance on its consolidated financial statements, it currently expects the ALLL to increase upon adoption given that the allowance will be required to cover the full remaining expected life of the portfolio upon adoption, rather than the incurred loss model under current U.S. GAAP. The extent of this increase is still being evaluated and will depend on economic conditions and the composition of the Company’s loan and lease portfolio at the time of adoption.

In February 2016, the FASB issued ASU 2016-02, Leases. 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 in the process of accumulating the lease data necessary to apply the amended guidance. The Company is continuing to evaluate the impact of the amended guidance on its consolidated financial statements, but the effects of recognizing most operating leases is not expected to be material. The Company expects to recognize right-of-use assets and lease liabilities for substantially all of its operating lease commitments based on the present value of unpaid lease payments as of the date of adoption.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this ASU require a number of changes including the following: (1) requires equity investments to be measured

11

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


at fair value with changes in fair value recognized in net income; (2) allows equity investments without readily determinable fair values to be measured at cost less impairment, if any, plus or minus changes in observable prices (referred to as the "measurement alternative"); and (3) changes certain presentation and disclosure requirements for financial instruments, including using the exit price notion when measuring the fair value of financial instruments. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. Effective October 1, 2018, the Company adopted this ASU and it did not have a material impact on its consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (ASC 606). As amended, 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.

Effective October 1, 2018, the Company adopted this ASU and its related amendments using the modified retrospective method for all contracts that have not been completed (i.e. open contracts). As such, any comparative information has not been adjusted and continues to be reported under Topic 605. There was no cumulative effect adjustment as of October 1, 2018. The Company evaluated the guidance and concluded that substantially all of its revenue streams are outside of the scope of ASC 606. As such, the guidance did not have a material impact on its consolidated financial statements or result in a material change to its disclosures. See more information in Note H, Revenue from Contracts with Customers.

NOTE C – Dividends and Share Repurchases

On November 23, 2018, the Company paid a regular dividend on common stock of $0.18 per share, which represented the 143rd consecutive quarterly cash dividend. Dividends per share were $0.18 and $0.15 for the quarters ended December 31, 2018 and 2017, respectively. On January 16, 2019, the Company declared a regular dividend on common stock of $0.20 per share, which represents its 144th consecutive quarterly cash dividend. This dividend will be paid on February 22, 2019 to common shareholders of record on February 8, 2019.

For the three months ended December 31, 2018, the Company repurchased 1,740,192 shares at an average price of $28.12. As of December 31, 2018, there are 292,406 remaining shares authorized to be repurchased under the current Board approved share repurchase program. On January 16, 2019 the Board authorized an additional 10,000,000 shares for repurchase under the program.

NOTE D – Loans Receivable

The following table is a summary of loans receivable.

12

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


 
December 31, 2018
 
September 30, 2018
 
(In thousands)
 
(In thousands)
Gross loans by category
 
 
 
 
 
   Single-family residential
$
5,844,963

44.9
%
 
$
5,798,966

45.1
%
   Construction
1,841,674

14.1

 
1,890,668

14.7

   Construction - custom
607,071

4.7

 
624,479

4.9

   Land - acquisition & development
181,323

1.4

 
155,204

1.2

   Land - consumer lot loans
100,563

0.8

 
102,036

0.8

   Multi-family
1,405,172

10.8

 
1,385,125

10.8

   Commercial real estate
1,526,887

11.7

 
1,452,168

11.3

   Commercial & industrial
1,213,738

9.3

 
1,140,874

8.9

   HELOC
136,856

1.1

 
130,852

1.0

   Consumer
162,221

1.2

 
173,306

1.3

Total gross loans
13,020,468

100
%
 
12,853,678

100
%
   Less:
 
 
 
 
 
      Allowance for loan losses
131,165

 
 
129,257

 
      Loans in process
1,138,308

 
 
1,195,506

 
      Net deferred fees, costs and discounts
50,756

 
 
51,834

 
Total loan contra accounts
1,320,229

 
 
1,376,597

 
Net loans
$
11,700,239

 
 
$
11,477,081

 

The following table sets forth information regarding non-accrual loans.
 
 
December 31, 2018
 
September 30, 2018
 
(In thousands, except ratio data)
Non-accrual loans:
 
 
 
 
 
 
 
Single-family residential
$
24,748

 
48.1
%
 
$
27,643

 
49.6
%
Construction
1,380

 
2.7

 
2,427

 
4.4

Land - acquisition & development
438

 
0.9

 
920

 
1.7

Land - consumer lot loans
785

 
1.5

 
787

 
1.4

Commercial real estate
9,478

 
18.4

 
8,971

 
16.1

Commercial & industrial
13,995

 
27.2

 
14,394

 
25.8

HELOC
599

 
1.2

 
523

 
0.9

Consumer
27

 
0.1

 
21

 

Total non-accrual loans
$
51,450

 
100
%
 
$
55,686

 
100
%
% of total net loans
0.44
%
 
 
 
0.49
%
 
 

The Company recognized interest income on non-accrual loans of approximately $843,000 in the three months ended December 31, 2018. Had these loans been on accrual status and performed according to their original contract terms, the Company would have recognized interest income of approximately $587,000 for the three months ended December 31, 2018. Recognized interest income for the three months ended December 31, 2018 was higher than what otherwise would have been collected in the period due to the collection of past due amounts. Interest cash flows collected on non-accrual loans vary from period to period as those loans are brought current or are paid off.

The following tables provide details regarding delinquent loans.

13

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


 
December 31, 2018
Loans Receivable
 
Days Delinquent Based on $ Amount of Loans
 
% based
on $
Type of Loan
Net of Loans In Process
 
Current
 
30
 
60
 
90
 
Total Delinquent
 
 
(In thousands, except ratio data)
 
 
Single-family residential
$
5,844,383

 
$
5,817,233

 
$
5,857

 
$
5,019

 
$
16,274

 
$
27,150

 
0.46
%
Construction
1,047,229

 
1,045,849

 

 

 
1,380

 
1,380

 
0.13

Construction - custom
299,622

 
299,622

 

 

 

 

 

Land - acquisition & development
145,635

 
145,443

 

 

 
192

 
192

 
0.13

Land - consumer lot loans
100,440

 
99,957

 

 

 
483

 
483

 
0.48

Multi-family
1,405,149

 
1,403,524

 
974

 
651

 

 
1,625

 
0.12

Commercial real estate
1,526,887

 
1,520,083

 
1,757

 
2,942

 
2,105

 
6,804

 
0.45

Commercial & industrial
1,213,738

 
1,203,436

 
283

 
234

 
9,785

 
10,302

 
0.85

HELOC
136,856

 
135,488

 
411

 
569

 
388

 
1,368

 
1.00

Consumer
162,221

 
161,946

 
121

 
125

 
29

 
275

 
0.17

Total Loans
$
11,882,160

 
$
11,832,581

 
$
9,403

 
$
9,540

 
$
30,636

 
$
49,579

 
0.42
%
Delinquency %
 
 
99.58%
 
0.08%
 
0.08%
 
0.26%
 
0.42%
 
 


September 30, 2018
Loans Receivable
 
Days Delinquent Based on $ Amount of Loans
 
% based
on $
Type of Loan
Net of Loans In Process
 
Current
 
30
 
60
 
90
 
Total Delinquent
 
 
(In thousands, except ratio data)
 
 
Single-family residential
$
5,798,353

 
$
5,768,253

 
$
7,983

 
$
3,562

 
$
18,555

 
$
30,100

 
0.52
%
Construction
1,062,855

 
1,060,428

 

 

 
2,427

 
2,427

 
0.23

Construction - custom
289,192

 
289,192

 

 

 

 

 

Land - acquisition & development
123,560

 
122,620

 

 
270

 
670

 
940

 
0.76

Land - consumer lot loans
101,908

 
101,294

 
144

 
117

 
353

 
614

 
0.60

Multi-family
1,385,103

 
1,385,103

 

 

 

 

 

Commercial real estate
1,452,169

 
1,448,946

 
316

 
1,767

 
1,140

 
3,223

 
0.22

Commercial & industrial
1,140,874

 
1,130,836

 

 

 
10,038

 
10,038

 
0.88

HELOC
130,852

 
129,510

 
567

 
469

 
306

 
1,342

 
1.03

Consumer
173,306

 
172,777

 
172

 
328

 
29

 
529

 
0.31

Total Loans
$
11,658,172

 
$
11,608,959

 
$
9,182

 
$
6,513

 
$
33,518

 
$
49,213

 
0.42
%
Delinquency %
 
 
99.58%
 
0.08%
 
0.06%
 
0.29%
 
0.42%
 
 

The percentage of total delinquent loans was 0.42% as of December 31, 2018 and 0.42% as of September 30, 2018. There are no loans greater than 90 days delinquent and still accruing interest as of either date.


14

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


The following table provides information related to loans restructured in a troubled debt restructuring ("TDR") during the periods presented:

 
Three Months Ended December 31,
 
2018
 
2017
 
 
 
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
1

 
$
283

 
$
283

 
8

 
$
2,012

 
$
2,012

   Commercial & Industrial

 

 

 
3

 
7,256

 
7,256

 
1

 
$
283

 
$
283

 
11

 
$
9,268

 
$
9,268


The following table provides 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.

 
Three Months Ended December 31,
 
2018
 
2017
 
Number of
 
Recorded
 
Number of
 
Recorded
 
Contracts
 
Investment
 
Contracts
 
Investment
 
($ in thousands)
 
($ in thousands)
Trouble Debt Restructurings That Subsequently Defaulted:
 
 
 
 
 
 
 
   Single-family residential
1

 
$
543

 
1

 
$
44

 
1

 
$
543

 
1

 
$
44



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 December 31, 2018, 96.0% of the Company's $149,693,000 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 December 31, 2018, single-family residential loans comprised 89.4% 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.





15

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 December 31, 2018
Beginning
Allowance
 
Charge-offs
 
Recoveries
 
Provision &
Transfers
 
Ending
Allowance
 
(In thousands)
Single-family residential
$
33,033

 
$
(25
)
 
$
230

 
$
(1,754
)
 
$
31,484

Construction
31,317

 

 

 
146

 
31,463

Construction - custom
1,842

 

 

 
84

 
1,926

Land - acquisition & development
7,978

 

 
1,782

 
(604
)
 
9,156

Land - consumer lot loans
2,164

 
(72
)
 
265

 
(213
)
 
2,144

Multi-family
8,329

 

 

 
(445
)
 
7,884

Commercial real estate
11,852

 
(339
)
 
525

 
673

 
12,711

Commercial & industrial
28,702

 
(179
)
 
33

 
1,723

 
30,279

HELOC
781

 
(886
)
 
1

 
1,168

 
1,064

Consumer
3,259

 
(140
)
 
213

 
(278
)
 
3,054

 
$
129,257

 
$
(1,641
)
 
$
3,049

 
$
500

 
$
131,165

Three Months Ended December 31, 2017
Beginning
Allowance
 
Charge-offs
 
Recoveries
 
Provision &
Transfers
 
Ending
Allowance
 
(In thousands)
Single-family residential
$
36,892

 
$
(461
)
 
$
121

 
$
(624
)
 
$
35,928

Construction
24,556

 

 

 
658

 
25,214

Construction - custom
1,944

 
(50
)
 

 
158

 
2,052

Land - acquisition & development
6,829

 

 
3,372

 
(2,846
)
 
7,355

Land - consumer lot loans
2,649

 
(47
)
 

 
304

 
2,906

Multi-family
7,862

 

 

 
42

 
7,904

Commercial real estate
11,818

 

 

 
(193
)
 
11,625

Commercial & industrial
28,524

 
(116
)
 
55

 
805

 
29,268

HELOC
855

 

 

 
(47
)
 
808

Consumer
1,144

 
(78
)
 
286

 
2,743

 
4,095

 
$
123,073

 
$
(752
)
 
$
3,834

 
$
1,000

 
$
127,155



The Company recorded a release of loan loss allowance of $500,000 for the three months ended December 31, 2018, compared with no provision for loan losses for the three months ended December 31, 2017. Reserving for new loan originations as the loan portfolio grows has been largely offset by recoveries of previously charged-off loans. Recoveries, net of charge-offs, totaled $1,408,000 for the three months ended December 31, 2018, compared to net recoveries of $3,082,000 during the three months ended December 31, 2017.

Non-performing assets were $62,730,000, or 0.39%, of total assets at December 31, 2018, compared to $70,093,000, or 0.44%, of total assets at September 30, 2018. Non-accrual loans were $51,450,000 at December 31, 2018, compared to $55,686,000 at September 30, 2018. Delinquencies, as a percent of total loans, were 0.42% at December 31, 2018, compared to 0.42% at September 30, 2018.

The reserve for unfunded commitments was $6,250,000 as of December 31, 2018, which is a decrease from $7,250,000 at September 30, 2018.


16

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


Management believes the allowance for loan losses plus the reserve for unfunded commitments, totaling $137,415,000, or 1.06% of gross loans as of December 31, 2018, is sufficient to absorb estimated losses inherent in the portfolio of loans and unfunded commitments.

The following tables show loans collectively and individually evaluated for impairment and the related allocation of general and specific reserves.
 
December 31, 2018
Loans Collectively Evaluated for Impairment
 
Loans Individually Evaluated for Impairment
 
Allowance Allocation
 
Recorded Investment of Loans
 
Ratio
 
Allowance Allocation
 
Recorded Investment of Loans
 
Ratio
 
(In thousands, except ratio data)
 
(In thousands, except ratio data)
Single-family residential
$
31,484

 
$
5,833,667

 
0.5
%
 
$

 
$
16,259

 
%
Construction
31,463

 
1,045,849

 
3.0

 

 
1,380

 

Construction - custom
1,926

 
299,622

 
0.6

 

 

 

Land - acquisition & development
9,147

 
145,197

 
6.3

 
9

 
438

 
2.1

Land - consumer lot loans
2,144

 
95,628

 
2.2

 

 
303

 

Multi-family
7,880

 
1,404,714

 
0.6

 
4

 
435

 
0.9

Commercial real estate
12,569

 
1,512,064

 
0.8

 
142

 
14,823

 
1.0

Commercial & industrial
29,934

 
1,199,565

 
2.5

 
345

 
14,206

 
2.4

HELOC
1,064

 
135,369

 
0.8

 

 
519

 

Consumer
3,054

 
161,958

 
1.9

 

 
162

 

 
$
130,665

 
$
11,833,633

 
1.1
%
 
$
500

 
$
48,525

 
1.0
%

September 30, 2018
Loans Collectively Evaluated for Impairment
 
Loans Individually Evaluated for Impairment
 
Allowance Allocation
 
Recorded Investment of Loans
 
Ratio
 
Allowance Allocation
 
Recorded Investment of Loans
 
Ratio
 
(In thousands, except ratio data)
 
(In thousands, except ratio data)
Single-family residential
$
33,033

 
$
5,782,870

 
0.6
%
 
$

 
$
21,345

 
%
Construction
31,317

 
1,060,428

 
3.0

 

 
2,427

 

Construction - custom
1,842

 
289,192

 
0.6

 

 

 

Land - acquisition & development
7,969

 
122,639

 
6.5

 
9

 
920

 
1.0

Land - consumer lot loans
2,164

 
96,583

 
2.2

 

 
507

 

Multi-family
8,325

 
1,384,655

 
0.6

 
4

 
448

 
1.0

Commercial real estate
11,702

 
1,432,791

 
0.8

 
150

 
19,378

 
0.8

Commercial & industrial
28,348

 
1,126,438

 
2.5

 
354

 
14,437

 
2.5

HELOC
781

 
128,715

 
0.6

 

 
1,162

 

Consumer
3,259

 
173,181

 
1.9

 

 
56

 

 
$
128,740

 
$
11,597,492

 
1.1
%
 
$
517

 
$
60,680

 
0.9
%

As of December 31, 2018, $130,665,000 of the allowance was calculated under the Company's general allowance methodology and the remaining $500,000 was specific reserves on loans deemed to be individually impaired. As of September 30, 2018, $128,740,000 of the allowance was calculated under the Company's general allowance methodology and the remaining $517,000 was specific reserves on loans deemed to be individually impaired.


17

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


The Company has an asset quality review function that analyzes its loan portfolio and reports the results of the review to its Board of Directors on a quarterly basis. The single-family residential, HELOC and consumer portfolios are evaluated based on their performance as a pool of loans, since no single loan is individually significant or judged by its risk rating, size or potential risk of loss. The construction, land, multi-family, commercial real estate and commercial and industrial loans are risk rated on a loan by loan basis to determine the relative risk inherent in specific borrowers or loans. Based on that risk rating, the loans are assigned a grade and classified as follows:

Pass – the credit does not meet one of the definitions below.

Special mention – A special mention credit is considered to be currently protected from loss but is potentially weak. No loss of principal or interest is foreseen; however, proper supervision and management attention is required to deter further deterioration in the credit. Assets in this category constitute some undue and unwarranted credit risk but not to the point of justifying a risk rating of substandard. The credit risk may be relatively minor yet constitutes an unwarranted risk in light of the circumstances surrounding a specific asset.

Substandard – A substandard credit is an unacceptable credit. Additionally, repayment in the normal course is in jeopardy due to the existence of one or more well defined weaknesses. In these situations, loss of principal is likely if the weakness is not corrected. A substandard asset is inadequately protected by the current sound worth and paying capacity of the borrower or of the collateral pledged, if any. Assets so classified will have a well-defined weakness or weaknesses that jeopardize the collection or liquidation of the debt. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets risk rated substandard.

Doubtful – A credit classified doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that the weakness makes collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. The probability of loss is high, but because of certain important and reasonably specific pending factors that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors include proposed merger, acquisition, or liquidation procedures, capital injection, perfecting liens on additional collateral, and refinancing plans.

Loss – Credits classified loss are considered uncollectible and of such little value that their continuance as a bankable asset is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this asset even though partial recovery may be affected in the future. Losses should be taken in the period in which they are identified as uncollectible. Partial charge-off versus full charge-off may be taken if the collateral offers some identifiable protection.


18

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


The following tables provide information on loans based on risk rating categories as defined above.
December 31, 2018
Internally Assigned Grade
 
 
 
Pass
 
Special mention
 
Substandard
 
Doubtful
 
Loss
 
Total Gross Loans
 
(In thousands, except ratio data)
Loan type
 
 
 
 
 
 
 
 
 
 
 
  Single-family residential
$
5,815,029

 
$

 
$
29,934

 
$

 
$

 
$
5,844,963

  Construction
1,832,326

 
7,968

 
1,380

 

 

 
1,841,674

  Construction - custom
607,071

 

 

 

 

 
607,071

  Land - acquisition & development
179,602

 

 
1,721

 

 

 
181,323

  Land - consumer lot loans
99,778

 

 
785

 

 

 
100,563

  Multi-family
1,397,920

 
3,254

 
3,998

 

 

 
1,405,172

  Commercial real estate
1,484,559

 
19,810

 
22,518

 

 

 
1,526,887

  Commercial & industrial
1,169,981

 
9,790

 
33,967

 

 

 
1,213,738

  HELOC
136,256

 

 
600

 

 

 
136,856

  Consumer
162,191

 

 
30

 

 

 
162,221

Total gross loans
$
12,884,713

 
$
40,822

 
$
94,933

 
$

 
$

 
$
13,020,468

 
 
 
 
 
 
 
 
 
 
 
 
Total grade as a % of total gross loans
99.0
%
 
0.3
%
 
0.7
%
 
%
 
%
 
 

September 30, 2018
Internally Assigned Grade
 
 
 
Pass
 
Special mention
 
Substandard
 
Doubtful
 
Loss
 
Total Gross Loans
 
(In thousands, except ratio data)
Loan type
 
 
 
 
 
 
 
 
 
 
 
 Single-family residential
$
5,766,096

 
$

 
$
32,870

 
$

 
$

 
$
5,798,966

 Construction
1,886,304

 
1,937

 
2,427

 

 

 
1,890,668

 Construction - custom
624,479

 

 

 

 

 
624,479

 Land - acquisition & development
152,984

 

 
2,220

 

 

 
155,204

 Land - consumer lot loans
101,249

 

 
787

 

 

 
102,036

 Multi-family
1,378,803

 
1,633

 
4,689

 

 

 
1,385,125

 Commercial real estate
1,421,602

 
7,114

 
23,452

 

 

 
1,452,168

 Commercial & industrial
1,093,405

 
16,513

 
30,956

 

 

 
1,140,874

 HELOC
130,330

 

 
522

 

 

 
130,852

 Consumer
173,285

 

 
21

 

 

 
173,306

Total gross loans
$
12,728,537

 
$
27,197

 
$
97,944

 
$

 
$

 
$
12,853,678

 
 
 
 
 
 
 
 
 
 
 
 
Total grade as a % of total gross loans
99.0
%
 
0.2
%
 
0.8
%
 
%
 
%
 
 




19

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


The following tables provide information on gross loans based on borrower payment activity.

December 31, 2018
Performing Loans
 
Non-Performing Loans
 
Amount
 
% of Total
Gross  Loans
 
Amount
 
% of Total
Gross  Loans
 
(In thousands, except ratio data)
Single-family residential
$
5,820,215

 
99.6
%
 
$
24,748

 
0.4
%
Construction
1,840,294

 
99.9

 
1,380

 
0.1

Construction - custom
607,071

 
100.0

 

 

Land - acquisition & development
180,885

 
99.8

 
438

 
0.2

Land - consumer lot loans
99,778

 
99.2

 
785

 
0.8

Multi-family
1,405,172

 
100.0

 

 

Commercial real estate
1,517,409

 
99.4

 
9,478

 
0.6

Commercial & industrial
1,199,743

 
98.8

 
13,995

 
1.2

HELOC
136,257

 
99.6

 
599

 
0.4

Consumer
162,194

 
100.0

 
27

 

 
$
12,969,018

 
99.6
%
 
$
51,450

 
0.4
%
September 30, 2018
Performing Loans
 
Non-Performing Loans
 
Amount
 
% of Total
Gross  Loans
 
Amount
 
% of Total
Gross  Loans
 
(In thousands, except ratio data)
Single-family residential
$
5,771,323

 
99.5
%
 
$
27,643

 
0.5
%
Construction
1,888,241

 
99.9

 
2,427

 
0.1

Construction - custom
624,479

 
100.0

 

 

Land - acquisition & development
154,284

 
99.4

 
920

 
0.6

Land - consumer lot loans
101,249

 
99.2

 
787

 
0.8

Multi-family
1,385,125

 
100.0

 

 

Commercial real estate
1,443,197

 
99.4

 
8,971

 
0.6

Commercial & industrial
1,126,480

 
98.7