Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 20172018
or
oTRANSITION 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 filerxAccelerated filero
Non-accelerated fileroSmaller reporting companyo
Emerging growth companyo  
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, 20182019
Common stock, $1.00 par value85,973,66581,112,469

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
 
PART I
 
Item 1.
 
Financial Statements (Unaudited)
 
  The Consolidated Financial Statements of Washington Federal, Inc. and Subsidiaries filed as a part of the report are as follows: 
 
  
Consolidated Statements of Financial Condition as of December 31, 20172018 and September 30, 20172018
 
3
 
  
Consolidated Statements of Operations for the three months ended December 31, 20172018 and December 31, 20162017
 
4
 
 
Consolidated Statements of Comprehensive Income for the three months ended December 31, 20172018 and December 31, 20162017
 
5
    
 
Consolidated Statements of Stockholders' Equity for the three months ended December 31, 20172018 and December 31, 20162017
 
6
    
  
Consolidated Statements of Cash Flows for the three months ended December 31, 20172018 and December 31, 20162017
 
7
 
  
Notes to Interim Consolidated Financial Statements
 
9
 
Item 2.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
3336
 
Item 3.
 
Quantitative and Qualitative Disclosures About Market Risk
 
4547
 
Item 4.
 
Controls and Procedures
 
4547
 
PART II
 
Item 1.
 
Legal Proceedings
 
4648
 
Item 1A.
 
Risk Factors
 
4648
 
Item 2.
 
Unregistered Sales of Equity Securities and Use of Proceeds
 
4648
 
Item 3.
 
Defaults Upon Senior Securities
 
4648
 
Item 4.
 
Mine Safety Disclosures
 
4648
     
Item 5.
 
Other Information
 
4648
 
Item 6.
 
Exhibits
 
4749
 
  
Signatures
 
4850


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





December 31, 2017 September 30, 2017December 31, 2018 September 30, 2018
(In thousands, except share data)(In thousands, except share data)
ASSETS      
Cash and cash equivalents$309,713
 $313,070
$283,375
 $268,650
Available-for-sale securities, at fair value1,245,855
 1,266,209
1,451,340
 1,314,957
Held-to-maturity securities, at amortized cost1,765,886
 1,646,856
1,586,815
 1,625,420
Loans receivable, net of allowance for loan losses of $127,155 and $123,073
11,107,042
 10,882,622
Loans receivable, net of allowance for loan losses of $131,165 and $129,25711,700,239
 11,477,081
Interest receivable42,146
 41,643
48,207
 47,295
Premises and equipment, net264,643
 263,694
276,683
 267,995
Real estate owned17,928
 20,658
8,171
 11,298
FHLB and FRB stock130,590
 122,990
135,590
 127,190
Bank owned life insurance211,833
 211,330
217,751
 216,254
Intangible assets, including goodwill of $300,288 and $293,153
310,578
 298,682
Intangible assets, including goodwill of $301,368 and $301,368310,776
 311,286
Federal and state income tax assets, net—
 1,804
Other assets177,799
 185,826
169,179
 196,494
$15,584,013
 $15,253,580
$16,188,126
 $15,865,724
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Liabilities      
Customer accounts      
Transaction deposit accounts$6,482,612
 $6,361,158
$6,744,346
 $6,582,343
Time deposit accounts4,518,967
 4,473,850
4,817,346
 4,804,803
11,001,579
 10,835,008
11,561,692
 11,387,146
FHLB advances2,415,000
 2,225,000
2,540,000
 2,330,000
Advance payments by borrowers for taxes and insurance23,924
 56,631
21,165
 57,417
Federal and state income tax assets, net7,388
 —
Accrued expenses and other liabilities133,892
 131,253
74,792
 94,253
13,574,395
 13,247,892
14,205,037
 13,868,816
Stockholders’ equity      
Common stock, $1.00 par value, 300,000,000 shares authorized; 135,274,618 and 134,957,511 shares issued; 86,363,099 and 87,193,362 shares outstanding
135,275
 134,958
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 outstanding135,496
 135,343
Additional paid-in capital1,661,866
 1,660,885
1,668,666
 1,666,609
Accumulated other comprehensive income (loss), net of taxes8,004
 5,015
2,891
 8,294
Treasury stock, at cost; 48,911,519 and 47,764,149 shares
(877,044) (838,060)
Treasury stock, at cost; 54,372,698 and 52,632,506 shares(1,051,239) (1,002,309)
Retained earnings1,081,517
 1,042,890
1,227,275
 1,188,971
2,009,618
 2,005,688
1,983,089
 1,996,908
$15,584,013
 $15,253,580
$16,188,126
 $15,865,724



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

Three Months Ended December 31,Three Months Ended December 31,
2017 20162018 2017
(In thousands, except share data)(In thousands, except share data)
INTEREST INCOME      
Loans receivable$124,511
 $114,835
$137,065
 $124,511
Mortgage-backed securities16,899
 12,789
19,192
 16,899
Investment securities and cash equivalents4,370
 5,140
6,365
 4,370
145,780
 132,764
162,622
 145,780
INTEREST EXPENSE      
Customer accounts14,638
 13,017
26,579
 14,638
FHLB advances15,407
 16,595
16,891
 15,407
30,045
 29,612
43,470
 30,045
Net interest income115,735
 103,152
119,152
 115,735
Provision (release) for loan losses—
 —
(500) —
Net interest income after provision (release) for loan losses115,735
 103,152
119,652
 115,735
      
OTHER INCOME      
Gain on sale of investment securities—
 968
Gain (loss) on sale of investment securities(9) —
FDIC loss share valuation adjustments(8,550) —
—
 (8,550)
Loan fee income1,035
 1,334
970
 1,035
Deposit fee income6,686
 5,185
6,243
 6,686
Other income7,624
 4,409
11,805
 7,624
6,795
 11,896
19,009
 6,795
      
OTHER EXPENSE      
Compensation and benefits29,619
 26,994
33,883
 29,619
Occupancy8,671
 8,450
9,268
 8,671
FDIC insurance premiums2,820
 2,839
2,862
 2,820
Product delivery3,956
 3,361
4,021
 3,956
Information technology7,929
 6,451
9,040
 7,929
Other expense8,946
 6,246
12,598
 8,946
61,941
 54,341
71,672
 61,941
Gain (loss) on real estate owned, net46
 398
320
 46
Income before income taxes60,635
 61,105
67,309
 60,635
Income tax expense8,965
 19,859
14,367
 8,965
NET INCOME$51,670
 $41,246
$52,942
 $51,670

 


 

PER SHARE DATA      
Basic earnings per share$0.59
 $0.46
$0.65
 $0.59
Diluted earnings per share0.59
 0.46
0.65
 0.59
Dividends paid on common stock per share0.15
 0.14
0.18
 0.15
Basic weighted average number of shares outstanding86,938,095
 89,310,958
81,791,852
 86,938,095
Diluted weighted average number of shares outstanding87,082,499
 89,731,024
81,831,478
 87,082,499

SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
4

Table of Contents

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

Three Months Ended December 31,Three Months Ended December 31,
2017 20162018 2017
(In thousands)(In thousands)
Net income$51,670
 $41,246
$52,942
 $51,670
      
Other comprehensive income (loss) net of tax:      
Net unrealized gain (loss) on available-for-sale investment securities(1,964) (17,079)3,515
 (1,964)
Reclassification adjustment of net gain (loss) from sale of available-for-sale securities included in net income—
 968
(9) —
Related tax benefit (expense)722
 5,921
(799) 722
(1,242) (10,190)2,707
 (1,242)
      
Net unrealized gain (loss) on cash flow hedges of borrowings6,690
 29,271
(10,499) 6,690
Related tax benefit (expense)(2,459) (10,757)2,389
 (2,459)
4,231
 18,514
(8,110) 4,231
      
Other comprehensive income (loss) net of tax2,989
 8,324
(5,403) 2,989
Comprehensive income$54,659
 $49,570
$47,539
 $54,659




SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED) 
(in thousands)Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal
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 awards17
442
—
—
—
459
Stock-based compensation expense97
1,654
—
—
—
1,751
Exercise of stock warrants39
(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 StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotalCommon StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal
Balance at October 1, 2017$134,958
$1,660,885
$1,042,890
$5,015
$(838,060)$2,005,688
$134,958
$1,660,885
$1,042,890
$5,015
$(838,060)$2,005,688
Net income



51,670




51,670
—
—
51,670
—
—
51,670
Other comprehensive income (loss)
2,989

2,989
—
—
—
2,989
—
2,989
Dividends on common stock



(13,043)



(13,043)—
—
(13,043)—
—
(13,043)
Compensation expense related to common stock options









—
Proceeds from exercise of common stock options14
272






286
Restricted stock expense194
818






1,012
Proceeds from stock-based awards14
272
—
—
—
286
Stock-based compensation expense194
818
—
—
—
1,012
Exercise of stock warrants109
(109) —
109
(109)—
—
—
—
Treasury stock acquired







(38,984)(38,984)—
—
—
—
(38,984)(38,984)
Balance at December 31, 2017$135,275
$1,661,866
$1,081,517
$8,004
$(877,044)$2,009,618
$135,275
$1,661,866
$1,081,517
$8,004
$(877,044)$2,009,618
 
(in thousands)Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Treasury StockTotal
Balance at October 1, 2016$134,308
$1,648,388
$943,877
$(11,156)$(739,686)$1,975,731
Net income



41,246




41,246
Other comprehensive income (loss)
8,324

8,324
Dividends on common stock



(12,422)



(12,422)
Proceeds from exercise of common stock options190
4,172






4,362
Restricted stock expense109
2,636






2,745
Exercise of stock warrants50
(50)





—
Treasury stock acquired







(20,385)(20,385)
Balance at December 31, 2016$134,657
$1,655,146
$972,701
$(2,832)$(760,071)$1,999,601



SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
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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, net7,388
 15,273
Stock-based compensation expense1,751
 1,012
Provision (release) for loan losses(500) —
Loss (gain) on sale of investment securities9
 —
Decrease (increase) in accrued interest receivable(912) (503)
Decrease (increase) in federal and state income tax receivable1,804
 —
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 assets16,816
 (7,715)
Increase (decrease) in accrued expenses and other liabilities(10,482) 2,595
Net cash provided by (used in) operating activities60,265
 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 redeemed155,800
 116,000
Available-for-sale securities purchased(172,076) (40,884)
Principal payments and maturities of available-for-sale securities38,118
 58,261
Proceeds from sales of available-for-sale securities491
 —
Held-to-maturity securities purchased—
 (170,836)
Principal payments and maturities of held-to-maturity securities37,736
 50,653
Proceeds from sales of real estate owned3,915
 3,440
Proceeds from settlement of bank owned life insurance—
 3,484
Proceeds from sales of premises and equipment10,233
 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 accounts174,623
 166,647
Proceeds from borrowings4,105,000
 3,090,000
Repayments of borrowings(3,895,000) (2,900,000)
Proceeds from stock-based awards459
 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 activities285,262
 272,199
Increase (decrease) in cash and cash equivalents14,725
 (3,357)
Cash, cash equivalents and restricted cash at beginning of period268,650
 313,070
Cash, cash equivalents and restricted cash at end of period$283,375
 $309,713
 Three Months Ended December 31,
 2017 2016
 (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES 
Net income$51,670
 $41,246
Adjustments to reconcile net income to net cash provided by operating activities:   
Depreciation, amortization, and accretion expense, net15,273
 12,087
Stock based compensation expense1,012
 2,745
Loss (gain) on sale of investment securities—
 (968)
Decrease (increase) in accrued interest receivable(503) (449)
Decrease (increase) in federal and state income tax receivable—
 16,047
Decrease (increase) in cash surrender value of bank owned life insurance(1,571) (1,739)
Gain on bank owned life insurance(2,416) (649)
Net realized (gain) loss on sales of premises, equipment, and real estate owned(241) 657
Decrease (increase) in other assets(7,715) 14,153
Increase (decrease) in accrued expenses and other liabilities2,595
 (41,265)
Net cash provided by (used in) operating activities58,104
 41,865
CASH FLOWS FROM INVESTING ACTIVITIES   
Origination of loans and principal repayments, net(80,089) (226,080)
Loans purchased(143,605) —
FHLB & FRB stock purchased(123,600) (9)
FHLB & FRB stock redeemed116,000
 24
Available-for-sale securities purchased(40,884) —
Principal payments and maturities of available-for-sale securities58,261
 112,469
Proceeds from sales of available-for-sale securities—
 350,890
Held-to-maturity securities purchased(170,836) (415,729)
Principal payments and maturities of held-to-maturity securities50,653
 78,778
Proceeds from sales of real estate owned3,440
 6,457
Proceeds from settlement of bank owned life insurance3,484
 1,231
Proceeds from sales of premises and equipment1
 1,722
Premises and equipment purchased and REO improvements(6,485) (2,200)
Net cash provided by (used in) investing activities(333,660) (92,447)
CASH FLOWS FROM FINANCING ACTIVITIES   
Net increase (decrease) in customer accounts166,647
 46,799
Proceeds from borrowings3,090,000
 —
Repayments of borrowings(2,900,000) —
Proceeds from exercise of common stock options and related tax benefit286
 4,362
Dividends paid on common stock(13,043) (12,422)
Treasury stock purchased(38,984) (20,385)
Increase (decrease) in borrower advances related to taxes and insurance, net(32,707) (19,302)
Net cash provided by (used in) financing activities272,199
 (948)
Increase (decrease) in cash and cash equivalents(3,357) (51,530)
Cash and cash equivalents at beginning of period313,070
 450,368
Cash and cash equivalents at end of period$309,713
 $398,838
(CONTINUED)

SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
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Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended December 31,Three Months Ended December 31,
2017 20162018 2017
(In thousands)(In thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION  
Non-cash investing activities      
Real estate acquired through foreclosure$773
 $1,589
$116
 $773
Non-cash financing activities      
Stock issued upon exercise of warrants3,761
 1,523
1,082
 3,761
Cash paid during the period for      
Interest29,986
 28,737
44,177
 29,986
Income taxes5,225
 —
—
 5,225



SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
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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 one-to-four family residential mortgage and construction loans, home equity loans, lines of credit, commercial real estate loans, commercial and industrial loans, multi-family and other forms of real estateconsumer 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 20172018 Annual Report on Form 10-K (“20172018 Annual Financial Statements”). Interim results are not necessarily indicative of results for a full year.
During the three months ended December 31, 2017, an immaterial correction was recorded related to acquisitions of insurance agency businesses in prior years. The balance sheet classification correction resulted in an increase in goodwill of $7,135,000 and finite-lived intangible assets of $5,106,000 and a corresponding decrease in other assets of $12,241,000.
Summary of Significant Accounting Policies - The significant accounting policies used in preparation of the Company's consolidated financial statements are disclosed in its 20172018 Annual Financial Statements. There have not been any material changes in ourthe Company's significant accounting policies compared to those contained in our 2017its 2018 Annual Financial Statements for the year ended September 30, 2017.2018.

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 $2,088,669,000$2,116,196,000 and $1,992,905,000$2,180,162,000 at December 31, 20172018 and September 30, 2017,2018, 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 2017,2018, the Financial Accounting Standards Board ("FASB"(“FASB”) issued Accounting Standards Update ("ASU"(“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

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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 ASU2017-12, 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 doesearly adopted this ASU beginning October 1, 2018. The adoption did not anticipate that this guidance will haveresult in a material impact on its consolidated financial statements.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

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of the period of adoption. TheEffective October 1, 2018, the Company doesearly adopted this ASU and it did not anticipate that this guidance will 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. TheEffective October 1, 2018, the Company doesadopted this ASU and it did not anticipate that this guidance will have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which eliminates Step 2 from the goodwill impairment test. The ASU also eliminates the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The ASU is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption being permitted for annual or interim goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not anticipate that this guidance will have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations Clarifying the Definition of a Business (Topic 805), for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The ASU is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2017, with early adoption permitted for transactions that occurred before the issuance date or effective date of the standard if the transactions were not reported in financial statements that have been issued or made available for issuance. The ASU must be applied prospectively and upon adoption the standard will impact how we assess acquisitions (or disposals) of assets or businesses. The Company does not anticipate that this guidance will 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 anticipate that this guidance will havepresent restricted cash as a material impactseparate line item in the statement of financial position, therefore, there was no change to the presentation of cash on its consolidated financial statements.the statement of cash flows. The nature and amount of restricted cash is shown in Note A, Summary of Significant Accounting Policies.

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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)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 is currently evaluatingpreviously classified proceeds from the guidancesettlement of BOLI policies in the manner required by the ASU so there was no change to determine its adoption method and does not expect this guidance to have a material impact on itsthe 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

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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, 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 incomea number of changes including 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 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 wasfollowing: (1) requires equity investments 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.measured


NOTE C – Dividends and Share Repurchases

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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 20, 2017,23, 2018, the Company paid a regular dividend on common stock of $0.15$0.18 per share, which represented the 139th143rd consecutive quarterly cash dividend. Dividends per share were $0.15$0.18 and $0.14$0.15 for the quarters ended December 31, 20172018 and 2016,2017, respectively. On January 24, 2018,16, 2019, the Company declared a regular dividend on common stock of $0.17$0.20 per share, which represents its 140th144th consecutive quarterly cash dividend. This dividend will be paid on February 23, 201822, 2019 to common shareholders of record on February 9, 2018.8, 2019.

For the three months ended December 31, 2017,2018, the Company repurchased 1,147,3701,740,192 shares at an average price of $33.98. Additionally, 108,704 shares of common stock were issued during the three months ended December 31, 2017 to investors that exercised warrants previously issued as part of the 2008 Troubled Asset Relief Program ("TARP").$28.12. As of December 31, 2017, 112,649 such warrants remain outstanding. Net of warrant cash repurchase activity,2018, there are 753,585292,406 remaining shares authorized to be repurchased under the current Board approved share repurchase program. On January 24, 2018,16, 2019 the Board approvedauthorized an additional 5,000,00010,000,000 shares availablefor repurchase under the repurchase program.

NOTE D – Loans Receivable

The following table is a summary of loans receivable.
 December 31, 2017 September 30, 2017
 (In thousands) (In thousands)
Gross loans by category     
   Single-family residential$5,693,318
45.7% $5,711,004
46.8%
   Construction1,710,418
13.7
 1,597,996
13.1
   Construction - custom583,580
4.7
 602,631
4.9
   Land - acquisition & development136,938
1.1
 124,308
1.0
   Land - consumer lot loans105,086
0.8
 104,405
0.9
   Multi-family1,312,695
10.5
 1,303,148
10.7
   Commercial real estate1,436,508
11.5
 1,434,610
11.8
   Commercial & industrial1,120,707
9.0
 1,093,360
9.0
   HELOC136,995
1.1
 144,850
1.2
   Consumer219,971
1.8
 85,075
0.7
Total gross loans12,456,216
100% 12,201,387
100%
   Less:     
      Allowance for loan losses127,155
  123,073
 
      Loans in process1,175,642
  1,149,934
 
      Net deferred fees, costs and discounts46,377
  45,758
 
Total loan contra accounts1,349,174
  1,318,765
 
Net loans$11,107,042
  $10,882,622
 


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 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%
   Construction1,841,674
14.1
 1,890,668
14.7
   Construction - custom607,071
4.7
 624,479
4.9
   Land - acquisition & development181,323
1.4
 155,204
1.2
   Land - consumer lot loans100,563
0.8
 102,036
0.8
   Multi-family1,405,172
10.8
 1,385,125
10.8
   Commercial real estate1,526,887
11.7
 1,452,168
11.3
   Commercial & industrial1,213,738
9.3
 1,140,874
8.9
   HELOC136,856
1.1
 130,852
1.0
   Consumer162,221
1.2
 173,306
1.3
Total gross loans13,020,468
100% 12,853,678
100%
   Less:     
      Allowance for loan losses131,165
  129,257
 
      Loans in process1,138,308
  1,195,506
 
      Net deferred fees, costs and discounts50,756
  51,834
 
Total loan contra accounts1,320,229
  1,376,597
 
Net loans$11,700,239
  $11,477,081
 

The following table sets forth information regarding non-accrual loans.
 
December 31, 2017 September 30, 2017December 31, 2018 September 30, 2018
(In thousands)(In thousands, except ratio data)
Non-accrual loans:              
Single-family residential$26,219
 57.7% $27,930
 56.3%$24,748
 48.1% $27,643
 49.6%
Construction364
 0.8
 —
 —
1,380
 2.7
 2,427
 4.4
Construction - custom—
 —
 91
 0.2
Land - acquisition & development1,326
 2.9
 296
 0.6
438
 0.9
 920
 1.7
Land - consumer lot loans976
 2.1
 605
 1.2
785
 1.5
 787
 1.4
Multi-family250
 0.5
 139
 0.3
Commercial real estate8,241
 18.1
 11,815
 23.8
9,478
 18.4
 8,971
 16.1
Commercial & industrial7,596
 16.7
 8,082
 16.3
13,995
 27.2
 14,394
 25.8
HELOC476
 1.0
 531
 1.1
599
 1.2
 523
 0.9
Consumer72
 0.2
 91
 0.2
27
 0.1
 21
 —
Total non-accrual loans$45,520
 100% $49,580
 100%$51,450
 100% $55,686
 100%
% of total net loans0.41%   0.46%  0.44%   0.49%  

The Company recognized interest income on non-accrual loans of approximately $2,551,000$843,000 in the three months ended December 31, 2017.2018. Had these loans been on accrual status and performed according to their original contract terms, the Company would have recognized interest income of approximately $489,000$587,000 for the three months ended December 31, 2017.2018. 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 variesvary from period to period as those loans are brought current or are paid off.

The following tables provide details regarding delinquent loans.
December 31, 2017Loans Receivable Days Delinquent Based on $ Amount of Loans 
% based
on $
Type of LoanNet of Loans In Process Current 30 60 90 Total Delinquent 
 (In thousands)  
Single-family residential$5,692,045
 $5,655,873
 $9,801
 $6,073
 $20,298
 $36,172
 0.64%
Construction852,164
 847,793
 1,500
 2,507
 364
 4,371
 0.51
Construction - custom292,255
 292,255
 —
 —
 —
 —
 —
Land - acquisition & development112,260
 111,018
 —
 —
 1,242
 1,242
 1.11
Land - consumer lot loans104,996
 104,246
 107
 153
 490
 750
 0.71
Multi-family1,312,673
 1,312,423
 —
 —
 250
 250
 0.02
Commercial real estate1,436,508
 1,436,064
 129
 —
 315
 444
 0.03
Commercial & industrial1,120,707
 1,117,240
 2,894
 —
 573
 3,467
 0.31
HELOC136,995
 136,004
 439
 147
 405
 991
 0.72
Consumer219,971
 219,404
 352
 154
 61
 567
 0.26
Total Loans$11,280,574
 $11,232,320
 $15,222
 $9,034
 $23,998
 $48,254
 0.43%
Delinquency %  99.57% 0.13% 0.08% 0.21% 0.43%  



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(UNAUDITED)


September 30, 2017Loans Receivable Days Delinquent Based on $ Amount of Loans 
% based
on $
December 31, 2018Loans Receivable Days Delinquent Based on $ Amount of Loans 
% based
on $
Type of LoanNet of Loans In Process Current 30 60 90 Total Delinquent 
% based
on $
Net of Loans In Process Current 30 60 90 Total Delinquent 
(In thousands) (In thousands, except ratio data)  
Single-family residential$5,709,690
 $5,671,933
 $10,925
 $4,810
 $22,022
 $37,757
 0.66%$5,844,383
 $5,817,233
 $5,857
 $5,019
 $16,274
 $27,150
 0.46%
Construction793,959
 793,959
 —
 —
 —
 —
 —
1,047,229
 1,045,849
 —
 —
 1,380
 1,380
 0.13
Construction - custom277,599
 277,508
 —
 —
 91
 91
 0.03
299,622
 299,622
 —
 —
 —
 —
 —
Land - acquisition & development104,856
 104,526
 —
 —
 330
 330
 0.31
145,635
 145,443
 —
 —
 192
 192
 0.13
Land - consumer lot loans104,335
 103,389
 112
 680
 154
 946
 0.91
100,440
 99,957
 —
 —
 483
 483
 0.48
Multi-family1,303,119
 1,302,720
 5
 255
 139
 399
 0.03
1,405,149
 1,403,524
 974
 651
 —
 1,625
 0.12
Commercial real estate1,434,610
 1,432,052
 507
 —
 2,051
 2,558
 0.18
1,526,887
 1,520,083
 1,757
 2,942
 2,105
 6,804
 0.45
Commercial & industrial1,093,360
 1,092,735
 —
 51
 574
 625
 0.06
1,213,738
 1,203,436
 283
 234
 9,785
 10,302
 0.85
HELOC144,850
 143,974
 221
 342
 313
 876
 0.60
136,856
 135,488
 411
 569
 388
 1,368
 1.00
Consumer85,075
 84,644
 245
 107
 79
 431
 0.51
162,221
 161,946
 121
 125
 29
 275
 0.17
Total Loans$11,051,453
 $11,007,440
 $12,015
 $6,245
 $25,753
 $44,013
 0.40%$11,882,160
 $11,832,581
 $9,403
 $9,540
 $30,636
 $49,579
 0.42%
Delinquency %  99.60% 0.11% 0.06% 0.23% 0.40%    99.58% 0.08% 0.08% 0.26% 0.42%  


September 30, 2018Loans Receivable Days Delinquent Based on $ Amount of Loans 
% based
on $
Type of LoanNet 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%
Construction1,062,855
 1,060,428
 —
 —
 2,427
 2,427
 0.23
Construction - custom289,192
 289,192
 —
 —
 —
 —
 —
Land - acquisition & development123,560
 122,620
 —
 270
 670
 940
 0.76
Land - consumer lot loans101,908
 101,294
 144
 117
 353
 614
 0.60
Multi-family1,385,103
 1,385,103
 —
 —
 —
 —
 —
Commercial real estate1,452,169
 1,448,946
 316
 1,767
 1,140
 3,223
 0.22
Commercial & industrial1,140,874
 1,130,836
 —
 —
 10,038
 10,038
 0.88
HELOC130,852
 129,510
 567
 469
 306
 1,342
 1.03
Consumer173,306
 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 increased from 0.40%was 0.42% as of December 31, 2018 and 0.42% as of September 30, 2017 to 0.43% as of December 31, 2017 and there2018. There are no loans greater than 90 days delinquent and still accruing interest as of either date.

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

 Three Months Ended December 31,
 2017 2016
   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 residential8
 $2,012
 $2,012
 12
 $2,134
 $2,134
   Land - consumer lot loans—
 —
 —
 1
 204
 204
   Commercial & Industrial3
 7,256
 7,256
 —
 —
 —
   HELOC—
 —
 —
 1
 228
 228
 11
 $9,268
 $9,268
 14
 $2,566
 $2,566



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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 residential1
 $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,
 2017 2016
 Number of Recorded Number of Recorded
 Contracts Investment Contracts Investment
 (In thousands) (In thousands)
TDRs That Subsequently Defaulted:       
   Single-family residential1
 $44
 6
 $1,993
   Commercial real estate—
 —
 2
 267
 1
 $44
 8
 $2,260
 Three Months Ended December 31,
 2018 2017
 Number of Recorded Number of Recorded
 Contracts Investment Contracts Investment
 ($ in thousands) ($ in thousands)
Trouble Debt Restructurings That Subsequently Defaulted:       
   Single-family residential1
 $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, 2017, 97.6%2018, 96.0% of the Company's $199,175,000$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, 2017,2018, single-family residential loans comprised 85.7%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.

The Company's remaining outstanding balance of assets subject to FDIC loss share agreements was $58,699,000 (including $54,865,000 of loans receivable) at December 31, 2017 compared to $67,914,000 (including $61,810,114 of loans receivable) as of September 30, 2017. As of December 31, 2017, the associated FDIC indemnification asset was $0 compared to a balance of $8,967,000 as of September 30, 2017. The FDIC clawback liability was $39,906,000 as of December 31, 2017 and $37,143,000 as of September 30, 2017. The Company has made a proposal to the FDIC to early terminate its remaining FDIC loss share agreements, which relate to the Horizon Bank and Home Valley Bank acquisitions. During the three months ended December 31, 2017, the Company recorded an $8,550,000 charge resulting from valuation adjustments related to the FDIC indemnification asset and FDIC clawback liability. The valuation adjustments were based on management's estimate of the amount that would be due to the FDIC to early terminate the loss share agreements.



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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, 2017
Beginning
Allowance
 Charge-offs Recoveries 
Provision &
Transfers
 
Ending
Allowance
Three Months Ended December 31, 2018
Beginning
Allowance
 Charge-offs Recoveries 
Provision &
Transfers
 
Ending
Allowance
(In thousands)(In thousands)
Single-family residential$36,892
 $(461) $121
 $(624) $35,928
$33,033
 $(25) $230
 $(1,754) $31,484
Construction24,556
 —
 —
 658
 25,214
31,317
 —
 —
 146
 31,463
Construction - custom1,944
 (50) —
 158
 2,052
1,842
 —
 —
 84
 1,926
Land - acquisition & development6,829
 —
 3,372
 (2,846) 7,355
7,978
 —
 1,782
 (604) 9,156
Land - consumer lot loans2,649
 (47) —
 304
 2,906
2,164
 (72) 265
 (213) 2,144
Multi-family7,862
 —
 —
 42
 7,904
8,329
 —
 —
 (445) 7,884
Commercial real estate11,818
 —
 —
 (193) 11,625
11,852
 (339) 525
 673
 12,711
Commercial & industrial28,524
 (116) 55
 805
 29,268
28,702
 (179) 33
 1,723
 30,279
HELOC855
 —
 —
 (47) 808
781
 (886) 1
 1,168
 1,064
Consumer1,144
 (78) 286
 2,743
 4,095
3,259
 (140) 213
 (278) 3,054
$123,073
 $(752) $3,834
 $1,000
 $127,155
$129,257
 $(1,641) $3,049
 $500
 $131,165
Three Months Ended December 31, 2016
Beginning
Allowance
 Charge-offs Recoveries 
Provision &
Transfers
 
Ending
Allowance
Three Months Ended December 31, 2017
Beginning
Allowance
 Charge-offs Recoveries 
Provision &
Transfers
 
Ending
Allowance
(In thousands)(In thousands)
Single-family residential$37,796
 $(115) $151
 $374
 $38,206
$36,892
 $(461) $121
 $(624) $35,928
Construction19,838
 —
 —
 2,096
 21,934
24,556
 —
 —
 658
 25,214
Construction - custom1,080
 —
 —
 30
 1,110
1,944
 (50) —
 158
 2,052
Land - acquisition & development6,023
 (20) 4,018
 (3,356) 6,665
6,829
 —
 3,372
 (2,846) 7,355
Land - consumer lot loans2,535
 (17) 70
 (87) 2,501
2,649
 (47) —
 304
 2,906
Multi-family6,925
 —
 —
 704
 7,629
7,862
 —
 —
 42
 7,904
Commercial real estate8,588
 (11) 356
 1,235
 10,168
11,818
 —
 —
 (193) 11,625
Commercial & industrial28,008
 (58) 725
 (939) 27,736
28,524
 (116) 55
 805
 29,268
HELOC813
 (37) 1
 55
 832
855
 —
 —
 (47) 808
Consumer1,888
 (146) 379
 (446) 1,675
1,144
 (78) 286
 2,743
 4,095
$113,494
 $(404) $5,700
 $(334) $118,456
$123,073
 $(752) $3,834
 $1,000
 $127,155


The Company recorded no provisiona release of loan loss allowance of $500,000 for loan losses during the three months ended December 31, 2017 or2018, compared with no provision for loan losses for the three months ended December 31, 2016.2017. Reserving for new loan originations as the loan portfolio grows and the mix changes has been largely offset by recoveries of previously charged-off loans. Recoveries, net of charge-offs, totaled $3,082,000$1,408,000 for the three months ended December 31, 2017,2018, compared with $5,296,000 ofto net recoveries forof $3,082,000 during the same period one year ago.three months ended December 31, 2017.

Non-performing assets were $63,448,000,$62,730,000, or 0.41%0.39%, of total assets at December 31, 2017,2018, compared to $70,238,000,$70,093,000, or 0.46%0.44%, of total assets at September 30, 2017.2018. Non-accrual loans were $45,520,000$51,450,000 at December 31, 2017,2018, compared to $49,580,000$55,686,000 at September 30, 2017.2018. Delinquencies, as a percent of total loans, were 0.43%0.42% at December 31, 2017,2018, compared to 0.40%0.42% at September 30, 2017.2018.

The reserve for unfunded commitments was $6,750,000$6,250,000 as of December 31, 2017,2018, which is a decrease from $7,750,000$7,250,000 at September 30, 2017.2018.

Management believes the allowance for loan losses plus the reserve for unfunded commitments, totaling $133,905,000, or 1.08% of gross loans as of December 31, 2017, is sufficient to absorb estimated inherent losses.

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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, 2017Loans Collectively Evaluated for Impairment Loans Individually Evaluated for Impairment
December 31, 2018Loans Collectively Evaluated for Impairment Loans Individually Evaluated for Impairment
Allowance Allocation Recorded Investment of Loans Ratio Allowance Allocation Recorded Investment of Loans RatioAllowance Allocation Recorded Investment of Loans Ratio Allowance Allocation Recorded Investment of Loans Ratio
(In thousands)   (In thousands)(In thousands, except ratio data) (In thousands, except ratio data)
Single-family residential$35,928
 $5,676,565
 0.6% $—
 $24,083
 —%$31,484
 $5,833,667
 0.5% $—
 $16,259
 —%
Construction25,214
 851,800
 3.0
 —
 364
 —
31,463
 1,045,849
 3.0
 —
 1,380
 —
Construction - custom2,052
 292,255
 0.7
 —
 —
 —
1,926
 299,622
 0.6
 —
 —
 —
Land - acquisition & development7,355
 110,884
 6.6
 —
 1,376
 —
9,147
 145,197
 6.3
 9
 438
 2.1
Land - consumer lot loans2,906
 97,291
 3.0
 —
 416
 —
2,144
 95,628
 2.2
 —
 303
 —
Multi-family7,899
 1,311,943
 0.6
 5
 730
 0.7
7,880
 1,404,714
 0.6
 4
 435
 0.9
Commercial real estate11,519
 1,389,749
 0.8
 106
 27,535
 0.4
12,569
 1,512,064
 0.8
 142
 14,823
 1.0
Commercial & industrial28,744
 1,108,961
 2.6
 524
 11,694
 4.5
29,934
 1,199,565
 2.5
 345
 14,206
 2.4
HELOC808
 134,320
 0.6
 —
 620
 —
1,064
 135,369
 0.8
 —
 519
 —
Consumer4,095
 219,784
 1.9
 —
 70
 —
3,054
 161,958
 1.9
 —
 162
 —
$126,520
 $11,193,552
 1.1% $635
 $66,888
 0.9%$130,665
 $11,833,633
 1.1% $500
 $48,525
 1.0%

September 30, 2017Loans Collectively Evaluated for Impairment Loans Individually Evaluated for Impairment
September 30, 2018Loans Collectively Evaluated for Impairment Loans Individually Evaluated for Impairment
Allowance Allocation Recorded Investment of Loans Ratio Allowance Allocation Recorded Investment of Loans RatioAllowance Allocation Recorded Investment of Loans Ratio Allowance Allocation Recorded Investment of Loans Ratio
(In thousands)   (In thousands)(In thousands, except ratio data) (In thousands, except ratio data)
Single-family residential$36,893
 $5,713,576
 0.7% $—
 $5,552
 —%$33,033
 $5,782,870
 0.6% $—
 $21,345
 —%
Construction24,556
 793,958
 3.1
 —
 —
 —
31,317
 1,060,428
 3.0
 —
 2,427
 —
Construction - custom1,944
 277,495
 0.7
 —
 105
 —
1,842
 289,192
 0.6
 —
 —
 —
Land - acquisition & development6,828
 104,767
 6.5
 1
 89
 1.0
7,969
 122,639
 6.5
 9
 920
 1.0
Land - consumer lot loans2,649
 96,337
 2.8
 —
 171
 —
2,164
 96,583
 2.2
 —
 507
 —
Multi-family7,857
 1,302,625
 0.6
 5
 493
 1.0
8,325
 1,384,655
 0.6
 4
 448
 1.0
Commercial real estate11,697
 1,391,668
 0.8
 120
 21,765
 0.6
11,702
 1,432,791
 0.8
 150
 19,378
 0.8
Commercial & industrial28,524
 1,093,210
 2.6
 —
 81
 —
28,348
 1,126,438
 2.5
 354
 14,437
 2.5
HELOC855
 141,689
 0.6
 —
 215
 —
781
 128,715
 0.6
 —
 1,162
 —
Consumer1,144
 84,887
 1.4
 —
 82
 —
3,259
 173,181
 1.9
 —
 56
 —
$122,947
 $11,000,212
 1.1% $126
 $28,553
 0.4%$128,740
 $11,597,492
 1.1% $517
 $60,680
 0.9%

As of December 31, 2017, $126,520,0002018, $130,665,000 of the allowance was calculated under the formulas contained in ourCompany's general allowance methodology and the remaining $635,000$500,000 was specific reserves on loans deemed to be individually impaired. As of September 30, 2017, $122,947,0002018, $128,740,000 of the allowance was calculated under the formulas contained in ourCompany's general allowance methodology and the remaining $126,000$517,000 was specific reserves on loans deemed to be individually impaired.


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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 theits 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

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


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 Managementmanagement 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 definedwell-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.


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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, 2017Internally Assigned Grade  
December 31, 2018Internally Assigned Grade  
Pass Special mention Substandard Doubtful Loss Total Gross LoansPass Special mention Substandard Doubtful Loss Total Gross Loans
(In thousands)(In thousands, except ratio data)
Loan type                      
Single-family residential$5,657,731
 $—
 $35,587
 $—
 $—
 $5,693,318
$5,815,029
 $—
 $29,934
 $—
 $—
 $5,844,963
Construction1,707,044
 —
 3,374
 —
 —
 1,710,418
1,832,326
 7,968
 1,380
 —
 —
 1,841,674
Construction - custom583,580
 —
 —
 —
 —
 583,580
607,071
 —
 —
 —
 —
 607,071
Land - acquisition & development134,625
 —
 2,313
 —
 —
 136,938
179,602
 —
 1,721
 —
 —
 181,323
Land - consumer lot loans104,105
 —
 981
 —
 —
 105,086
99,778
 —
 785
 —
 —
 100,563
Multi-family1,304,991
 3,159
 4,545
 —
 —
 1,312,695
1,397,920
 3,254
 3,998
 —
 —
 1,405,172
Commercial real estate1,401,236
 3,764
 31,508
 —
 —
 1,436,508
1,484,559
 19,810
 22,518
 —
 —
 1,526,887
Commercial & industrial1,077,207
 10,423
 33,077
 —
 —
 1,120,707
1,169,981
 9,790
 33,967
 —
 —
 1,213,738
HELOC136,287
 —
 708
 —
 —
 136,995
136,256
 —
 600
 —
 —
 136,856
Consumer219,899
 —
 72
 —
 —
 219,971
162,191
 —
 30
 —
 —
 162,221
Total gross loans$12,326,705
 $17,346
 $112,165
 $—
 $—
 $12,456,216
$12,884,713
 $40,822
 $94,933
 $—
 $—
 $13,020,468
                      
Total grade as a % of total gross loans99.0% 0.1% 0.9% —% —%  99.0% 0.3% 0.7% —% —%  

September 30, 2017Internally Assigned Grade  
September 30, 2018Internally Assigned Grade  
Pass Special mention Substandard Doubtful Loss Total Gross LoansPass Special mention Substandard Doubtful Loss Total Gross Loans
(In thousands)(In thousands, except ratio data)
Loan type                      
Single-family residential$5,671,229
 $—
 $39,775
 $—
 $—
 $5,711,004
$5,766,096
 $—
 $32,870
 $—
 $—
 $5,798,966
Construction1,594,926
 —
 3,070
 —
 —
 1,597,996
1,886,304
 1,937
 2,427
 —
 —
 1,890,668
Construction - custom602,540
 —
 91
 —
 —
 602,631
624,479
 —
 —
 —
 —
 624,479
Land - acquisition & development123,028
 207
 1,073
 —
 —
 124,308
152,984
 —
 2,220
 —
 —
 155,204
Land - consumer lot loans103,787
 —
 618
 —
 —
 104,405
101,249
 —
 787
 —
 —
 102,036
Multi-family1,295,261
 5,795
 2,092
 —
 —
 1,303,148
1,378,803
 1,633
 4,689
 —
 —
 1,385,125
Commercial real estate1,391,996
 5,944
 36,670
 —
 —
 1,434,610
1,421,602
 7,114
 23,452
 —
 —
 1,452,168
Commercial & industrial1,054,972
 14,814
 23,574
 —
 —
 1,093,360
1,093,405
 16,513
 30,956
 —
 —
 1,140,874
HELOC144,229
 —
 621
 —
 —
 144,850
130,330
 —
 522
 —
 —
 130,852
Consumer84,984
 —
 91
 —
 —
 85,075
173,285
 —
 21
 —
 —
 173,306
Total gross loans$12,066,952
 $26,760
 $107,675
 $—
 $—
 $12,201,387
$12,728,537
 $27,197
 $97,944
 $—
 $—
 $12,853,678
                      
Total grade as a % of total gross loans98.9% 0.2% 0.9% —% —%  99.0% 0.2% 0.8% —% —%  




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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, 2017Performing Loans Non-Performing Loans
December 31, 2018Performing Loans Non-Performing Loans
Amount 
% of Total
Gross  Loans
 Amount 
% of Total
Gross  Loans
Amount 
% of Total
Gross  Loans
 Amount 
% of Total
Gross  Loans
(In thousands)(In thousands, except ratio data)
Single-family residential$5,667,099
 99.5% $26,219
 0.5%$5,820,215
 99.6% $24,748
 0.4%
Construction1,710,054
 100.0
 364
 —
1,840,294
 99.9
 1,380
 0.1
Construction - custom583,580
 100.0
 —
 —
607,071
 100.0
 —
 —
Land - acquisition & development135,612
 99.0
 1,326
 1.0
180,885
 99.8
 438
 0.2
Land - consumer lot loans104,110
 99.1
 976
 0.9
99,778
 99.2
 785
 0.8
Multi-family1,312,445
 100.0
 250
 —
1,405,172
 100.0
 —
 —
Commercial real estate1,428,267
 99.4
 8,241
 0.6
1,517,409
 99.4
 9,478
 0.6
Commercial & industrial1,113,111
 99.3
 7,596
 0.7
1,199,743
 98.8
 13,995
 1.2
HELOC136,519
 99.7
 476
 0.3
136,257
 99.6
 599
 0.4
Consumer219,899
 100.0
 72
 —
162,194
 100.0
 27
 —
$12,410,696
 99.6% $45,520
 0.4%$12,969,018
��99.6% $51,450
 0.4%
September 30, 2017Performing Loans Non-Performing Loans
September 30, 2018Performing Loans Non-Performing Loans
Amount 
% of Total
Gross  Loans
 Amount 
% of Total
Gross  Loans
Amount 
% of Total
Gross  Loans
 Amount 
% of Total
Gross  Loans
(In thousands)(In thousands, except ratio data)
Single-family residential$5,683,074
 99.5% $27,930
 0.5%$5,771,323
 99.5% $27,643
 0.5%
Construction1,597,996
 100.0
 —
 —
1,888,241
 99.9
 2,427
 0.1
Construction - custom602,540
 99.9
 91
 0.1
624,479
 100.0
 —
 —
Land - acquisition & development124,012
 99.8
 296
 0.2
154,284
 99.4
 920
 0.6
Land - consumer lot loans103,800
 99.4
 605
 0.6
101,249
 99.2
 787
 0.8
Multi-family1,303,009
 99.9
 139
 0.1
1,385,125
 100.0
 —
 —
Commercial real estate1,422,795
 99.2
 11,815
 0.8
1,443,197
 99.4
 8,971
 0.6
Commercial & industrial1,085,278
 99.3
 8,082
 0.7
1,126,480
 98.7
 14,394
 1.3
HELOC144,319
 99.6
 531
 0.4
130,329
 99.6
 523
 0.4
Consumer84,984
 99.9
 91
 0.1
173,285
 100.0
 21
 —
$12,151,807
 99.6% $49,580
 0.4%$12,797,992
 99.6% $55,686
 0.4%

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


The following tables provide information on impaired loan balances and the related allowances by loan types. 
       
December 31, 2017
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 Average Recorded Investment
December 31, 2018
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Average Recorded Investment
(Year-To-Date)
(In thousands)(In thousands)
Impaired loans with no related allowance recorded:              
Single-family residential$20,405
 $21,860
 $—
 $20,864
$15,438
 $16,633
 $—
 $17,155
Construction969
 969
 —
 485
1,630
 1,750
 —
 2,164
Construction - custom—
 —
 —
 74
Land - acquisition & development1,376
 1,405
 —
 853
335
 335
 —
 575
Land - consumer lot loans300
 375
 —
 254
181
 281
 —
 246
Multi-family250
 254
 —
 195
Commercial real estate16,372
 21,720
 —
 14,631
9,945
 15,035
 —
 9,685
Commercial & industrial4,439
 4,506
 —
 6,359
9,868
 10,055
 —
 10,003
HELOC620
 747
 —
 555
519
 612
 —
 465
Consumer70
 134
 —
 79
25
 230
 —
 23
44,801
 51,970
 —
 44,349
37,941
 44,931
 —
 40,316
Impaired loans with an allowance recorded:              
Single-family residential170,677
 174,162
 3,412
 176,308
133,808
 136,876
 2,498
 136,802
Land - acquisition & development—
 —
 —
 45
103
 156
 —
 105
Land - consumer lot loans7,405
 7,776
 —
 7,677
4,601
 4,930
 9
 4,759
Multi-family480
 480
 5
 487
435
 435
 4
 442
Commercial real estate11,910
 12,755
 106
 13,495
5,552
 6,625
 142
 5,903
Commercial & industrial7,256
 7,256
 524
 3,628
4,159
 7,502
 345
 4,225
HELOC1,356
 1,435
 —
 1,542
968
 978
 —
 972
Consumer91
 91
 —
 94
67
 67
 —
 69
199,175
 203,955
 4,047
(1)203,276
149,693
 157,569
 2,998
(1)153,277
Total impaired loans:              
Single-family residential191,082
 196,022
 3,412
 197,172
149,246
 153,509
 2,498
 153,957
Construction969
 969
 —
 485
1,630
 1,750
 —
 2,164
Construction - custom—
 —
 —
 74
Land - acquisition & development1,376
 1,405
 —
 898
438
 491
 —
 680
Land - consumer lot loans7,705
 8,151
 —
 7,931
4,782
 5,211
 9
 5,005
Multi-family730
 734
 5
 682
435
 435
 4
 442
Commercial real estate28,282
 34,475
 106
 28,126
15,497
 21,660
 142
 15,588
Commercial & industrial11,695
 11,762
 524
 9,987
14,027
 17,557
 345
 14,228
HELOC1,976
 2,182
 —
 2,097
1,487
 1,590
 —
 1,437
Consumer161
 225
 —
 173
92
 297
 —
 92
$243,976
 $255,925
 $4,047
(1)$247,625
$187,634
 $202,500
 $2,998
(1)$193,593

(1)Includes $635,000$500,000 of specific reserves and $3,412,000$2,498,000 included in the general reserves.



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


September 30, 2017
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 
Average
Recorded
Investment
September 30, 2018
Recorded
Investment
 
Unpaid
Principal
Balance
 
Related
Allowance
 Average Recorded Investment
(Year-To-Date)
(In thousands)(In thousands)
Impaired loans with no related allowance recorded:              
Single-family residential$21,325
 $23,880
 $—
 $19,371
$18,872
 $20,050
 $—
 $20,097
Construction2,698
 2,818
 —
 1,349
Construction - custom148
 165
 —
 231
—
 —
 —
 74
Land - acquisition & development330
 8,208
 —
 176
814
 814
 —
 572
Land - consumer lot loans208
 330
 —
 431
311
 336
 —
 260
Multi-family139
 3,231
 —
 748
—
 —
 —
 70
Commercial real estate12,890
 22,487
 —
 11,466
9,425
 14,035
 —
 11,158
Commercial & industrial8,279
 14,321
 —
 7,425
10,137
 10,146
 —
 9,208
HELOC490
 1,212
 —
 487
410
 1,170
 —
 450
Consumer88
 1,433
 —
 57
20
 56
 —
 54
43,897
 75,267
 —
 40,392
42,687
 49,425
 —
 43,292
Impaired loans with an allowance recorded:              
Single-family residential181,941
 186,167
 4,030
 204,723
139,796
 143,099
 2,871
 161,729
Land - acquisition & development90
 90
 1
 576
107
 157
 —
 39
Land - consumer lot loans7,949
 8,526
 —
 8,976
4,916
 5,290
 9
 6,449
Multi-family493
 493
 5
 1,024
448
 448
 4
 471
Commercial real estate15,079
 16,707
 120
 16,991
6,254
 7,733
 150
 10,445
Commercial & industrial—
 —
 —
 297
4,291
 7,506
 354
 4,495
HELOC1,728
 1,806
 —
 1,451
976
 984
 —
 1,395
Consumer97
 284
 —
 100
70
 70
 —
 83
207,377
 214,073
 4,156
(1)234,138
156,858
 165,287
 3,388
(1)185,106
Total impaired loans:              
Single-family residential203,266
 210,047
 4,030
 224,094
158,668
 163,149
 2,871
 181,826
Construction2,698
 2,818
 —
 1,349
Construction - custom148
 165
 —
 231
—
 —
 —
 74
Land - acquisition & development420
 8,298
 1
 752
921
 971
 —
 611
Land - consumer lot loans8,157
 8,856
 —
 9,407
5,227
 5,626
 9
 6,709
Multi-family632
 3,724
 5
 1,772
448
 448
 4
 541
Commercial real estate27,969
 39,194
 120
 28,457
15,679
 21,768
 150
 21,603
Commercial & industrial8,279
 14,321
 —
 7,722
14,428
 17,652
 354
 13,703
HELOC2,218
 3,018
 —
 1,938
1,386
 2,154
 —
 1,845
Consumer185
 1,717
 —
 157
90
 126
 —
 137
$251,274
 $289,340
 $4,156
(1)$274,530
$199,545
 $214,712
 $3,388
(1)$228,398

(1)Includes $126,000$517,000 of specific reserves and $4,030,000$2,871,000 included in the general reserves.


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


NOTE F – Fair Value Measurements
FASB ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy whichthat requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active exchange markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active and other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
We haveThe Company has established and documented the Company's process for determining the fair values of the Company'sits assets and liabilities, where applicable. Fair value is based on quoted market prices, when available, for identical or similar assets or liabilities. In the absence of quoted market prices, fair value is determined using valuation models or third-party appraisals. The following is a description of the valuation methodologies used to measure and report the fair value of financial assets and liabilities on a recurring or nonrecurring basis.
Measured on a Recurring Basis
Available-for-Sale Securities and Derivative Contracts
Securities available for sale are recorded at fair value on a recurring basis. The fair value of debt securities are priced using model pricing based on the securities' relationship to other benchmark quoted prices as provided by an independent third party, and under GAAP are considered a Level 2 input method. Securities that are traded on active exchanges, including the Company's equity securities, are measured using the closing price in an active market and are considered a Level 1 input method.
The Company offers interest rate swaps to its variable rate borrowers who want to manage their interest rate risk. At the same time, the Company enters into the opposite trade with a counter party to offset its interest rate risk. The Company has also entered into commercial loan hedges as well as borrowings hedges using interest rate swaps. The fair value of these interest rate swaps are estimated by a third party pricing service using a discounted cash flow technique. These are considered a Level 2 input method.
 

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


The following tables present the balance of assets and liabilities measured at fair value on a recurring basis.
December 31, 2017December 31, 2018
Level 1 Level 2 Level 3 TotalLevel 1 Level 2 Level 3 Total
(In thousands)(In thousands)
Financial Assets              
Available-for-sale securities:              
Equity securities$503
 $—
 $—
 $503
U.S. government and agency securities—
 194,869
 —
 194,869
$—
 $200,704
 $—
 $200,704
Municipal bonds—
 26,212
 —
 26,212
—
 23,058
 —
 23,058
Corporate debt securities—
 184,416
 —
 184,416
—
 222,541
 —
 222,541
Mortgage-backed securities              
Agency pass-through certificates—
 831,489
 —
 831,489
—
 1,005,037
 —
 1,005,037
Commercial MBS—
 8,366
 —
 8,366
—
 —
 —
 —
Total available-for-sale securities503
 1,245,352
 —
 1,245,855
—
 1,451,340
 —
 1,451,340
Interest rate contracts—
 7,587
 —
 7,587
—
 3,341
 —
 3,341
Commercial loan hedges—
 1,506
 —
 1,506
Borrowings hedges—
 4,997
 —
 4,997
—
 11,751
 —
 11,751
Total financial assets$503
 $1,257,936
 $—
 $1,258,439
$—
 $1,467,938
 $—
 $1,467,938
              
Financial Liabilities              
Interest rate contracts$—
 $7,587
 $—
 $7,587
$—
 $3,341
 $—
 $3,341
Commercial loan hedges—
 36
 —
 36
Total financial liabilities$—
 $7,623
 $—
 $7,623
$—
 $3,341
 $—
 $3,341
There were no transfers between, into and/or out of Levels 1, 2 or 3 during the three months ended December 31, 20172018.

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


September 30, 2017September 30, 2018
Level 1 Level 2 Level 3 TotalLevel 1 Level 2 Level 3 Total
(In thousands)(In thousands)
Financial Assets              
Available-for-sale securities:              
Equity securities$522
 $—
 $—
 $522
$488
 $—
 $—
 $488
U.S. government and agency securities—
 211,077
 —
 211,077
—
 207,293
 —
 207,293
Municipal bonds—
 26,624
 —
 26,624
—
 22,978
 —
 22,978
Corporate debt securities—
 185,298
 —
 185,298
—
 184,695
 —
 184,695
Mortgage-backed securities              
Agency pass-through certificates—
 834,297
 —
 834,297
—
 896,041
 —
 896,041
Commercial MBS—
 8,391
 —
 8,391
—
 3,462
 —
 3,462
Total available-for-sale securities522
 1,265,687
 —
 1,266,209
488
 1,314,469
 —
 1,314,957
Interest rate contracts—
 1,139
 —
 1,139
—
 12,731
 —
 12,731
Commercial loan hedges—
 3,857
 —
 3,857
Borrowings hedges—
 22,250
 —
 22,250
Total financial assets$522
 $1,266,826
 $—
 $1,267,348
$488
 $1,353,307
 $—
 $1,353,795
              
Financial Liabilities              
Interest rate contracts$—
 $1,139
 $—
 $1,139
$—
 $12,731
 $—
 $12,731
Commercial loan hedges—
 174
 —
 174
Borrowings hedges—
 1,693
 —
 1,693
Total financial liabilities$—
 $3,006
 $—
 $3,006
$—
 $12,731
 $—
 $12,731
There were no transfers between, into and/or out of Levels 1, 2 or 3 during the fiscal year ended September 30, 2017.2018.


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


Measured on a Nonrecurring Basis

Impaired Loans & Real Estate Owned

Real estate owned ("REO") consists principally of properties acquired through foreclosure. From time to time, and on a nonrecurring basis, adjustments using fair value measurements are recorded to reflect increases or decreases based on the discounted cash flows, the current appraisal or estimated value of the collateral, but only up to the fair value of the real estate owned as of the initial transfer date less selling costs.

When management determines that the fair value of the collateral or the real estate owned requires additional adjustments, either as a result of an updated appraised value or when there is no observable market price, the Company classifies the impaired loan or real estate owned as Level 3. Level 3 assets recorded at fair value on a nonrecurring basis at December 31, 20172018 included loans for which a specific reserve allowance was established or a partial charge-off was recorded based on the fair value of collateral, as well as real estate owned where the fair value of the property was less than the cost basis.

The following tables present the aggregated balance of assets that were measured at fair value on a nonrecurring basis at December 31, 20172018 and December 31, 2016,2017, and the total gains (losses) resulting from those fair value adjustments for the three months ended December 31, 20172018 and December 31, 2016.2017. The estimated fair value measurements are shown gross of estimated selling costs.
 
December 31, 2017 Three Months Ended December 31, 2017December 31, 2018 Three Months Ended December 31, 2018
Level 1 Level  2 Level  3 Total Total Gains (Losses)Level 1 Level  2 Level  3 Total Total Gains (Losses)
(In thousands)(In thousands) (In thousands)
Impaired loans (1)$—
 $—
 $688
 $688
 $(507)$—
 $—
 $1,970
 $1,970
 $(726)
Real estate owned (2)—
 —
 2,055
 2,055
 (180)—
 —
 520
 520
 (32)
Balance at end of period$—
 $—
 $2,743
 $2,743
 $(687)$—
 $—
 $2,490
 $2,490
 $(758)

(1)The gains (losses) represent remeasurements of collateral-dependent loans.
(2)The gains (losses) represent aggregate writedowns and charge-offs on REO.

December 31, 2016 Three Months Ended December 31, 2016December 31, 2017 Three Months Ended December 31, 2017
Level 1 Level  2 Level  3 Total Total Gains (Losses)Level 1 Level  2 Level  3 Total Total Gains (Losses)
(In thousands)(In thousands) (In thousands)
Impaired loans (1)$—
 $—
 $3,353
 $3,353
 $(422)$—
 $—
 $688
 $688
 $(507)
Real estate owned (2)—
 —
 2,299
 2,299
 (241)—
 —
 2,055
 2,055
 (180)
Balance at end of period$—
 $—
 $5,652
 $5,652
 $(663)$—
 $—
 $2,743
 $2,743
 $(687)

(1)The gains (losses) represent remeasurements of collateral-dependent loans.
(2)The gains (losses) represent aggregate writedowns and charge-offs on REO.
Impaired loans - The Company adjusts the carrying amount of impaired loans when there is evidence of probable loss and the expected fair value of the loan is less than its contractual amount. The amount of the impairment may be determined based on the estimated present value of future cash flows or the fair value of the underlying collateral. Impaired loans with a specific reserve allowance based on cash flow analysis or the value of the underlying collateral are classified as Level 3 assets.
The evaluations for impairment are prepared by the Company's Problem Loan Review Committee, which is chaired by the Chief Credit Officer and includes the Loan Review manager and Special Credits manager, as well as senior credit officers, division managers and group executives, as applicable. These evaluations are performed in conjunction with the quarterly allowance for loan loss process.

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


Applicable loans that were included in the previous quarter's review are reevaluated and if their values are materially different from the prior quarter evaluation, the underlying information (loan balance and collateral value) are compared. Material differences

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


are evaluated for reasonableness and discussions are held between the relationship manager and their division manager to understand the difference and determine if any adjustment is necessary.
The inputs are developed and substantiated on a quarterly basis, based on current borrower developments, market conditions and collateral values. The following methods are used to value impaired loans:
The fair value of the collateral, which may take the form of real estate or personal property, is based on internal estimates, field observations, assessments provided by third-party appraisers and other valuation models. The Company performs or reaffirms valuations of collateral-dependent impaired loans at least annually. Adjustments are made if management believes that more recent information is available and relevant with respect to the fair value of the collateral.
The present value of the expected future cash flows of the loans is used for measurement of non collateral-dependentnon-collateral-dependent loans to test for impairment.
Real estate owned - When a loan is reclassified from loan status to real estate owned due to the Company taking possession of the collateral, a special credits officer, along with the special credits manager, obtains a valuation, which may include appraisals or third-party price opinions, which is used to establish the fair value of the underlying collateral. The determined fair value, less selling costs, becomes the carrying value of the REO asset.
The fair value of REO assets is re-evaluated quarterly and the REO asset is adjusted to reflect the fair value as necessary. After foreclosure, the valuations are updated periodically and current market conditions may require the assets to be written down further or up to the cost basis established on the date of transfer. The carrying balance of REO assets are also written down once a bona fide offer is contractually accepted, through execution of a purchase and sale agreement, where the accepted price is lower than the cost established on the transfer date.
Fair Values of Financial Instruments
FASB ASC 825 requires disclosure of fair value information about financial instruments, whether or not recognized on the statement of financial condition, for which it is practicable to estimate those values. Certain financial instruments and all non-financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value estimates presented do not reflect the underlying fair value of the Company. Although management is not aware of any factors that would materially affect the estimated fair value amounts presented below, such amounts have not been comprehensively revalued for purposes of these financial statements since the dates shown, and therefore, estimates of fair value subsequent to those dates may differ significantly from the amounts presented below. 

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


 December 31, 2017 September 30, 2017 December 31, 2018 September 30, 2018
 Level in Fair Value Hierarchy 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
 Level in Fair Value Hierarchy 
Carrying
Amount
 
Estimated
Fair Value
 
Carrying
Amount
 
Estimated
Fair Value
 (In thousands) ($ in thousands)
Financial assets                
Cash and cash equivalents 1 $309,713
 $309,713
 $313,070
 $313,070
 1 $283,375
 $283,375
 $268,650
 $268,650
Available-for-sale securities                
Equity securities 1 503
 503
 522
 522
 1 —
 —
 488
 488
U.S. government and agency securities 2 194,869
 194,869
 211,077
 211,077
 2 200,704
 200,704
 207,293
 207,293
Municipal bonds 2 26,212
 26,212
 26,624
 26,624
 2 23,058
 23,058
 22,978
 22,978
Corporate debt securities 2 184,416
 184,416
 185,298
 185,298
 2 222,541
 222,541
 184,695
 184,695
Mortgage-backed securities                
Agency pass-through certificates 2 831,489
 831,489
 834,297
 834,297
 2 1,005,037
 1,005,037
 896,041
 896,041
Commercial MBS 2 8,366
 8,366
 8,391
 8,391
 2 —
 —
 3,462
 3,462
Total available-for-sale securities 1,245,855
 1,245,855
 1,266,209
 1,266,209
 1,451,340
 1,451,340
 1,314,957
 1,314,957
Held-to-maturity securities                
Mortgage-backed securities                
Agency pass-through certificates 2 1,750,886
 1,738,337
 1,646,856
 1,635,913
 2 1,571,815
 1,522,571
 1,610,420
 1,533,742
Commercial MBS 2 15,000
 15,005
 —
 —
 2 15,000
 14,925
 15,000
 15,028
Total held-to-maturity securities 1,765,886
 1,753,342
 1,646,856
 1,635,913
 1,586,815
 1,537,496
 1,625,420
 1,548,770
                
Loans receivable 3 11,107,042
 11,503,407
 10,882,622
 11,247,586
 3 11,700,239
 12,020,772
 11,477,081
 11,556,326
FHLB and FRB stock 2 130,590
 130,590
 122,990
 122,990
 2 135,590
 135,590
 127,190
 127,190
Other assets - interest rate contracts 2 7,587
 7,587
 1,139
 1,139
 2 3,341
 3,341
 12,731
 12,731
Other assets - commercial loan hedges 2 1,506
 1,506
 3,857
 3,857
Other assets - borrowings hedges 2 4,997
 4,997
 —
 —
 2 11,751
 11,751
 22,250
 22,250
                
Financial liabilities                
Customer accounts 2 11,001,579
 10,483,114
 10,835,008
 10,411,686
Time deposit accounts 2 4,817,346
 4,822,783
 4,804,803
 4,779,040
FHLB advances 2 2,415,000
 2,431,792
 2,225,000
 2,266,791
 2 2,540,000
 2,537,375
 2,330,000
 2,316,964
Other liabilities - interest rate contracts 2 7,587
 7,587
 1,139
 1,139
 2 3,341
 3,341
 12,731
 12,731
Other liabilities - commercial loan hedges 2 36
 36
 174
 174
Other liabilities - borrowings hedges 2 —
 —
 1,693
 1,693
The following methods and assumptions were used to estimate the fair value of financial instruments:
Cash and cash equivalents – The carrying amount of these items is a reasonable estimate of their fair value. 
Available-for-sale securities and held-to-maturity securities – Securities at fair value are primarily priced using model pricing based on the securities' relationship to other benchmark quoted prices as provided by an independent third party, and are considered a Level 2 input method. Equity securities whichthat are exchange traded are considered a Level 1 input method.
Loans receivable – For certain homogeneous categoriesFair values are estimated first by stratifying the portfolios of loans with similar financial characteristics. Loans are segregated by type such as multi-family real estate, residential mortgage, construction, commercial, consumer and land loans. Each loan category is further segmented into fixed- and variable-rateadjustable-rate interest terms. For residential mortgages and multi-family loans, the bank determined that its best exit price was by securitization. MBS benchmark prices are used as a base price, with further loan level pricing adjustments made based on individual loan characteristics such as Fico score, LTV, Property Type and occupancy. For all other loan categories an estimate of fair value is then calculated based on discounted cash flows using as a discount rate the current rate offered and observed in the market on similar products, plus an adjustment for liquidity to reflect the non-homogeneous nature of the loans, as well as, a annual loss rate based on historical losses to arrive at an estimated exit price fair value. Fair value for securities backed by similarimpaired loans adjusted for differences in loan characteristics,is also based on recent appraisals or estimated cash flows discounted using rates commensurate with risk associated with the same methodology described above for AFS and HTM securities. The fair value of other loan types is estimated by discounting the futurecash flows. Assumptions regarding credit risk, cash flows and estimated prepaymentsdiscount rates are judgmentally determined using the current rates at which similar loans would be made to borrowers with similar credit ratingsavailable market information and for the same remaining term. Some loan types were valued at carrying value because of their floating rate or expected maturity characteristics. Net deferred loan fees are not included in the fair value calculation but are included in the carrying amount.
FHLB and FRB stock – The fair value is based upon the par value of the stock which equates to its carrying value.specific borrower information.

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


FHLB and FRB stock – The fair value is based upon the par value of the stock that equates to its carrying value.
Customer accounts – The fair value of demand deposits, savings accounts, and money market accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated by discounting the estimated future cash flows using the rates currently offered for deposits with similar remaining maturities.
FHLB advances – The fair value of FHLB advances and other borrowings is estimated by discounting the estimated future cash flows using rates currently available to the Company for debt with similar remaining maturities.
Interest rate contracts – The bankCompany offers interest rate swaps to its variable rate borrowers who want to manage their interest rate risk. At the same time, the bankCompany enters into the opposite trade with a counterparty to offset its interest rate risk. The fair value of these interest rate swaps areis estimated by a third party pricing service using a discounted cash flow technique.
Commercial loan hedges – The fair value of the interest rate swaps areis estimated by a third party pricing service using a discounted cash flow technique.
Borrowings hedges – The fair value of the interest rate swaps areis estimated by a third party pricing service using a discounted cash flow technique.
The following tables provide a reconciliation of amortized cost to fair value of available-for-sale and held-to-maturity securities.
December 31, 2017December 31, 2018
Amortized
Cost
 Gross Unrealized 
Fair
Value
 Yield
Amortized
Cost
 Gross Unrealized 
Fair
Value
 Yield
Gains Losses Gains Losses 
(In thousands)($ in thousands)
Available-for-sale securities
        
        
U.S. government and agency securities due                  
Within 1 year$3,300
 $70
 $—
 $3,370
 9.80%
1 to 5 years2,123
 —
 —
 2,123
 1.61
5 to 10 years68,326
 —
 (1,174) 67,152
 2.03
$59,408
 $—
 $(1,386) $58,022
 2.72%
Over 10 years122,171
 215
 (162) 122,224
 2.09
143,209
 19
 (546) 142,682
 3.30
Equity securities due         
1 to 5 years500
 3
 —
 503
 1.80
Corporate debt securities due                  
1 to 5 years63,657
 1,936
 —
 65,593
 3.14
113,798
 1,068
 (1,605) 113,261
 3.93
5 to 10 years119,962
 213
 (1,352) 118,823
 2.66
112,587
 —
 (3,307) 109,280
 3.35
Over 10 years—
 —
 —
 —
 —
Municipal bonds due                  
Within 1 year2,352
 —
 (4) 2,348
 1.23
1 to 5 years1,374
 8
 —
 1,382
 2.05
1,406
 —
 (8) 1,398
 2.05
Over 10 years20,338
 2,144
 —
 22,482
 6.45
20,318
 1,342
 —
 21,660
 6.45
Mortgage-backed securities                  
Agency pass-through certificates825,744
 8,181
 (2,436) 831,489
 3.11
1,008,622
 4,888
 (8,473) 1,005,037
 3.36
Commercial MBS8,350
 16
 —
 8,366
 3.55
1,238,197
 12,786
 (5,128) 1,245,855
 2.98
1,459,348
 7,317
 (15,325) 1,451,340
 3.42
Held-to-maturity securities                  
Mortgage-backed securities                  
Agency pass-through certificates1,750,886
 6,218
 (18,767) 1,738,337
 3.16
1,571,815
 870
 (50,114) 1,522,571
 3.16
Commercial MBS15,000
 5
 —
 15,005
 2.23
15,000
 —
 (75) 14,925
 3.33
1,765,886
 6,223
 (18,767) 1,753,342
 3.15
1,586,815
 870
 (50,189) 1,537,496
 3.16
$3,004,083
 $19,009
 $(23,895) $2,999,197
 3.08%$3,046,163
 $8,187
 $(65,514) $2,988,836
 3.29%
 

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


September 30, 2017September 30, 2018
Amortized
Cost
 Gross Unrealized 
Fair
Value
 Yield
Amortized
Cost
 Gross Unrealized 
Fair
Value
 Yield
GainsLosses GainsLosses 
(In thousands)($ in thousands)
Available-for-sale securities                  
U.S. government and agency securities due                  
Within 1 year$9,300
 $146
 $—
 $9,446
 10.38%
5 to 10 years$60,872
 $—
 $(1,473) $59,399
 2.55%
Over 10 years148,099
 109
 (314) 147,894
 3.05
Equity securities         
1 to 5 years500
 —
 (12) 488
 1.80
Corporate bonds due         
1 to 5 years5,688
 2
 —
 5,690
 1.51
113,762
 1,875
 (13) 115,624
 3.59
5 to 10 years69,108
 —
 (1,238) 67,870
 1.93
69,965
 35
 (929) 69,071
 3.23
Over 10 years127,936
 353
 (218) 128,071
 1.92
Equity Securities         
Municipal bonds due         
1 to 5 years500
 22
 —
 522
 1.80
1,398
 —
 (24) 1,374
 2.05
Corporate bonds due         
Within 1 year—
 —
 —
 —
 —
1 to 5 years63,622
 2,083
 —
 65,705
 2.96
5 to 10 years119,960
 210
 (577) 119,593
 2.62
Over 10 years—
 —
 —
 —
 —
Municipal bonds due         
Within 1 year2,344
 10
 —
 2,354
 1.23
1 to 5 years1,367
 55
 —
 1,422
 2.05
5 to 10 years—
 —
 —
 —
 —
Over 10 years20,343
 2,505
 —
 22,848
 6.45
20,323
 1,281
 —
 21,604
 6.45
Mortgage-backed securities                  
Agency pass-through certificates828,069
 8,402
 (2,174) 834,297
 2.96
908,092
 1,383
 (13,434) 896,041
 3.29
Commercial MBS8,350
 41
 —
 8,391
 3.31
3,460
 2
 —
 3,462
 4.36
1,256,587
 13,829
 (4,207) 1,266,209
 2.86
1,326,471
 4,685
 (16,199) 1,314,957
 3.30
Held-to-maturity securities                  
Mortgage-backed securities                  
Agency pass-through certificates1,646,856
 7,143
 (18,086) 1,635,913
 3.14
1,610,420
 305
 (76,983) 1,533,742
 3.16
Other Commercial MBS15,000
 28
 —
 15,028
 3.03
1,646,856
 7,143
 (18,086) 1,635,913
 —
1,625,420
 333
 (76,983) 1,548,770
 3.16
$2,903,443
 $20,972
 $(22,293) $2,902,122
 3.02%$2,951,891
 $5,018
 $(93,182) $2,863,727
 3.22%

For available-for-sale investment securities, there were sales totaling $491,000 during the three months ended December 31, 2018 and no sales during the three months ended December 31, 2017 and sales totaling $350,890,000 during the three months ended December 31, 2016.2017. There were purchases of $40,884,000$172,076,000 of available-for-sale investment securities during the three months ended December 31, 20172018 and purchases of $40,884 during the three months ended December 31, 2017. For held-to-maturity investment securities, there were no purchases during the three months ended December 31, 2016. For held-to-maturity investment securities, there were2018 and purchases totalingof $170,836,000 during the three months ended December 31, 2017 and purchases of $415,729,000 during the three months ended December 31, 2016.2017. There were no sales of held-to-maturity investment securities during either period. Substantially all of the agency mortgage-backed securities have contractual due dates that exceed 10 years.
The following tables show the unrealized gross losses and fair value of securities as of December 31, 20172018 and September 30, 2017,2018, by length of time that individual securities in each category have been in a continuous loss position. The decline in fair value since purchase is attributable to changes in interest rates. Because the Company does not intend to sell these securities and does not consider it more likely than not that it will be required to sell these securities before the recovery of amortized cost basis, which may be upon maturity, the Company does not consider these investments to be other than temporarily impaired.

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


 
December 31, 2017Less than 12 months 12 months or more Total
 
Unrealized
Gross Losses
 
Fair
Value
 
Unrealized
Gross Losses
 
Fair
Value
 
Unrealized
Gross Losses
 
Fair
Value
 (In thousands)  
Corporate debt securities$—
 $—
 $(1,352) $98,648
 $(1,352) 98,648
Municipal bonds due—
 —
 (4) 2,347
 (4) 2,347
U.S. government and agency securities—
 —
 (1,336) 104,572
 (1,336) 104,572
Agency pass-through certificates(131) 71,537
 (21,072) 1,218,036
 (21,203) 1,289,573
 $(131) $71,537
 $(23,764) $1,423,603
 $(23,895) $1,495,140
December 31, 2018Less than 12 months 12 months or more Total
 
Unrealized
Gross Losses
 
Fair
Value
 
Unrealized
Gross Losses
 
Fair
Value
 
Unrealized
Gross Losses
 
Fair
Value
 (In thousands)  
Corporate debt securities$(1,172) $61,415
 $(3,740) $96,261
 $(4,912) 157,676
Municipal bonds(8) 1,398
 —
 —
 (8) 1,398
U.S. government and agency securities(286) 69,152
 (1,646) 74,212
 (1,932) 143,364
Mortgage-backed securities(14,860) 869,583
 (43,802) 1,077,341
 (58,662) 1,946,924
 $(16,326) $1,001,548
 $(49,188) $1,247,814
 $(65,514) $2,249,362

September 30, 2017Less than 12 months 12 months or more Total
September 30, 2018Less than 12 months 12 months or more Total
Unrealized
Gross Losses
 
Fair
Value
 
Unrealized
Gross Losses
 
Fair
Value
 
Unrealized
Gross Losses
 
Fair
Value
Unrealized
Gross Losses
 
Fair
Value
 
Unrealized
Gross Losses
 
Fair
Value
 
Unrealized
Gross Losses
 
Fair
Value
(In thousands)  (In thousands)  
Corporate debt securities$—
 $—
 $(577) $49,423
 $(577) $49,423
$(929) $49,072
 $(14) $24,988
 $(943) $74,060
Municipal bonds due(24) 1,374
 —
 —
 (24) 1,374
U.S. government and agency securities(759) 24,400
 (697) 96,195
 (1,456) 120,595
(141) 37,565
 (1,645) 76,499
 (1,786) 114,064
Agency pass-through certificates(17,683) 1,163,358
 (2,577) 249,304
 (20,260) 1,412,662
Equity securities(12) 488
 —
 —
 (12) 488
Mortgage-backed securities(28,748) 1,035,754
 (61,669) 1,183,017
 (90,417) 2,218,771
$(18,442) $1,187,758
 $(3,851) $394,922
 $(22,293) $1,582,680
$(29,854) $1,124,253
 $(63,328) $1,284,504
 $(93,182) $2,408,757


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


NOTE G – Derivatives and Hedging Activities

On October 1, 2018, the Company early adopted ASU 2017-12, Targeted Improvements to Accounting for Hedge Activities. This standard primarily impacts the accounting for derivatives designated as fair value and cash flow accounting hedges.

The following tables present the fair value, notional amount and balance sheet classification of derivative assets and liabilities at December 31, 2018 and September 30, 2018:

December 31, 2018Derivatives Assets Derivative Liabilities
 Balance Sheet LocationNotionalFair Value Balance Sheet LocationNotionalFair Value
 (In thousands) (In thousands)
Client swap programOther assets$385,302
$3,341
 Other liabilities$385,302
$3,341
Commercial loan fair value hedgesOther assets95,645
1,506
 Other liabilities—
—
Borrowings cash flow hedgesOther assets700,000
11,751
 Other liabilities—
—
  $1,180,947
$16,598
  $385,302
$3,341

September 30, 2018Derivatives Assets Derivative Liabilities
Interest rate contract purposeBalance Sheet LocationNotionalFair Value Balance Sheet LocationNotionalFair Value
 (In thousands) (In thousands)
Client swap programOther assets$395,396
$12,731
 Other liabilities$395,396
$12,731
Commercial loan fair value hedgesOther assets97,927
3,857
 Other liabilities—
—
Borrowings cash flow hedgesOther assets700,000
22,250
 Other liabilities—
—
  $1,193,323
$38,838
  $395,396
$12,731

The Company enters into interest rate swaps to hedge the interest rate risk of individual fixed rate commercial loans and these relationships qualify as fair value hedges under ASC 815, which provides for offsetting of the recognition of gains and losses of the respective interest rate swap and the hedged item. Gains and losses on the interest rate swaps designated in these hedge relationships, along with the offsetting gains and losses on the hedged items attributable to the hedged risk, are recognized in current earnings within the same income statement line item.

Upon electing to apply ASC 815 fair value hedge accounting, the carrying value of the hedged item is adjusted to reflect the cumulative impact of changes in fair value attributable to the hedged risk. The hedge basis adjustment remains with the hedged item until the hedged item is de-recognized from the balance sheet. The following table presents the impact of fair value hedge accounting on the carrying value of the hedged items (fixed rate commercial loans) at December 31, 2018:
(In thousands)December 31, 2018
Balance sheet line item in which hedged item is recordedCarrying value of hedged itemsCumulative fair value hedge adjustment included in carrying amount of hedged items
Loans receivable$97,377
$1,506
 $97,377
$1,506


The Company has entered into interest rate swaps to convert certain short-term borrowings to fixed rate payments. The primary purpose of these hedges is to mitigate the risk of changes in future cash flows resulting from increasing interest rates. For qualifying cash flow hedges under ASC 815, gains and losses on the interest rate swaps are recorded in accumulated other comprehensive income ("AOCI") and then reclassified into earnings in the same period the hedged cash flows affect earnings and within the same

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


income statement line item as the hedged cash flows. As of December 31, 2018, the maturities for hedges of adjustable rate borrowings ranged from two to eight years, with the weighted average being 3.4 years.

The following table presents the impact of derivative instruments (cash flow hedges on borrowings) on AOCI for the periods presented:

(In thousands)Three Months Ended December 31,
Amount of gain/(loss) recognized in AOCI on derivatives in cash flow hedging relationships2018
Interest rate contracts: 
Pay fixed/receive floating swaps on cash flow hedges of borrowings$(10,499)
Total pre-tax gain/(loss) recognized in AOCI$(10,499)

The following table presents the gains/(losses) on derivative instruments in fair value and cash flow accounting hedging relationships under ASC 815 for the period presented:

Three Months Ended December 31, 2018Interest income on loans receivableInterest expense on FHLB advances
 (In thousands)
Interest income/expense, including the effects of fair value and cash flow hedges$137,065
$16,891
   
Gain/(loss) on fair value hedging relationships:  
Interest rate contracts  
Amounts related to interest settlements on derivatives$19
 
Recognized on derivatives(2,317) 
Recognized on hedged items2,279
 
Net income/(expense) recognized on fair value hedges$(19) 
   
Gain/(loss) on cash flow hedging relationships:  
Interest rate contracts  
Amounts related to interest settlements on derivatives $(551)
Amount of derivative gain/(loss) reclassified from AOCI into interest income/expense —
Net income/(expense) recognized on cash flow hedges $(551)

The Company periodically enters into certain interest rate swap agreements in order to provide commercial loan customers the ability to convert from variable to fixed interest rate payments, while the Company retains a variable rate loan. Under these agreements, the Company enters into a variable rate loan agreement and a swap agreement with the client. The swap agreement effectively converts the client’s variable rate loan into a fixed rate. The Company enters into a corresponding swap agreement with a third party in order to offset its exposure on the variable and fixed components of the client's swap agreement. The Company had $956,247,000 and $1,035,573,000 notional in interest rate swaps to hedge this exposure as of December 31, 2017 and September 30, 2017, respectively. The interest rate swaps are derivatives under FASB ASC 815, Derivatives and Hedging, with changes in fair value recorded in earnings. There was no net impact to the statement of operations for the three months ended December 31, 20172018 and 20162017 as the changes in value for the asset and liability side of the swaps offset each other.

The Company has also entered into interest rate swaps to convert certain existing and future short-term borrowings to fixed rate payments. The primary purpose of these hedges is to mitigate the risk of rising interest rates, specifically LIBOR rates, which are a benchmark for the short term borrowings. The hedging program qualifies as a cash flow hedge under ASC 815, which provides for offsetting of the recognition of gains and losses of the interest rate swaps and the hedged items. The hedged item is the LIBOR portion of the series of existing or future short-term fixed rate borrowings over the term of the interest rate swap. The change in the fair value of the interest rate swaps is recorded in other comprehensive income. The Company had $700,000,000 notional in interest rate swaps to hedge existing and anticipated future borrowings as of December 31, 2017 and September 30, 2017.

The Company has also enters into interest rate swaps to hedge the interest rate risk of individualreceive fixed rate commercial loans and these relationships qualify as a fair value hedges under ASC 815, which provides for offsetting of the recognition of gains and losses of the respective interest rate swap and the hedged item. The interest rate swaps in these hedging relationships had a notional amount of $97,927,000 and $52,936,000 as of December 31, 2017 and September 30, 2017, respectively.pay fixed swap offset each other.

The following table presents the fair value and balance sheet classificationimpact of derivatives at December 31, 2017 and September 30, 2017:
  Asset Derivatives Liability Derivatives
  December 31, 2017 September 30, 2017 December 31, 2017 September 30, 2017
  Balance Sheet   Balance Sheet   Balance Sheet   Balance Sheet  
  Location Fair Value Location Fair Value Location Fair Value Location Fair Value
  (In thousands)
Interest rate contracts Other assets $7,587
 Other assets $1,139
 Other liabilities $7,587
 Other liabilities $1,139
Commercial loan hedges Other assets —
 Other assets —
 Other liabilities 36
 Other liabilities 174
Borrowings hedges Other assets 4,997
 Other assets —
 Other liabilities —
 Other liabilities 1,693
    $12,584
   $1,139
   $7,623
   $3,006
derivative instruments (client swap program) that are not designated in accounting hedges under ASC 815 for the periods presented:


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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


(In thousands) Three Months Ended December 31,
Derivative instrumentsClassification of gain/(loss) recognized in income on derivative instrument2018
Interest rate contracts:  
Pay fixed/receive floating swapOther noninterest income$(9,390)
Receive fixed/pay floating swapOther noninterest income9,390
  $—


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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


NOTE H – Income TaxesRevenue from Contracts with Customers

On December 22, 2017, the U.S. Government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses. For businesses, the Act reduces the corporate federal tax rate from a maximum of 35% to a flat 21% rate. The corporate tax rate reduction was effective JanuaryOctober 1, 2018. Because2018, the Company has a fiscal year end of September 30, the reduced corporate tax rate will result in the application of a blended federal statutory tax rate for its fiscal year 2018 and then a flat 21% thereafter.

Under generally accepted accounting principles, the Company uses the asset and liability method of accounting foradopted ASU No. 2014-09, Revenue from Contracts with Customers ("ASC 606"). Since net interest income taxes. Under this method, deferred taxon financial assets and liabilities is excluded from this guidance, a significant majority of our revenues are recognized fornot subject to the future tax consequences attributable to differences betweennew guidance.

Revenue streams that are within the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. At September 30, 2017, the Company’s deferred tax assets and liabilities were determined based on the then-current enacted federal tax rate of 35%. As a resultscope of the reductionnew guidance are presented within noninterest income and are, in general, recognized as revenue at the corporate income tax rate undersame time the Act,Company's obligation to the Company revalued its deferred tax assets and liabilities at December 31, 2017. Deferred tax assets and liabilities expected to be realized in fiscal year 2018 were re-measured usingcustomer is satisfied. Most of the aforementioned blended rate. All remaining deferred tax assets and liabilities were re-measured usingCompany's customer contracts that are within the scope of the new statutory federal rateguidance are cancelable by either party without penalty and are short-term in nature. These sources of 21%. These re-measurements collectively resulted in a discrete tax benefit of $3,700,000 that was recognized duringrevenue include depositor and other consumer and business banking fees, commission income, as well as debit and credit card interchange fees. For the three months ended December 31, 2017.2018, in scope revenue streams represented approximately 4.9% of our total revenues. As this standard is immaterial to our consolidated financial statements, the Company has omitted certain disclosures in ASC 606, including the disaggregation of revenue table. Sources of noninterest income within the scope of the new guidance include the following:

Deposit related and other service charges (recognized in Deposit Fee Income): The Company's deposit accounts are governed by standardized contracts customary in the industry. Revenues are earned at a point in time or over time (monthly) from account maintenance fees and charges for specific transactions such as wire transfers, stop payment orders, overdrafts, debit card replacements, check orders and cashier’s checks. The Company’s revaluationperformance obligation related to each of its deferred tax assetsthese fees is generally satisfied, and liabilitiesthe related revenue recognized, at the time the service is subject to further clarificationprovided (point in time or monthly). The Company is principal in each of these contracts.

Debit and Credit Card Interchange Fees (recognized in Deposit Fee Income): The Company receives interchange fees from the debit card or credit card payment network based on transactions involving debit or credit cards issued by the Company, generally measured as a percentage of the Tax Actunderlying transaction. Interchange fees from debit and refinementscredit card transactions are recognized as the transaction processing services are provided by the network. The Company acts as an agent in the card payment network arrangement so the interchange fees are recorded net of its estimates. As a result, the actual impact on the deferred tax assets and liabilities and income tax expense dueany expenses paid to the Tax Act may vary from the amounts estimated.principal (the card network in this case).

FORWARD LOOKING STATEMENTS

Insurance Agency Commissions (recognized in Other Income): WAFD Insurance Group, Inc. is a wholly-owned subsidiary of Washington Federal, N.A. that operates as an insurance agency, selling and marketing property and casualty insurance policies for a small number of high-quality insurance carriers. WAFD Insurance Group, Inc. (the "Company") makes statementsearns revenue in this Quarterly Report on Form 10-Qthe form of commissions paid by the insurance carriers for policies that constitute forward-looking statements. Words such as “expects,” “anticipates,” “believes,” “estimates,” “intends,” “forecasts,” “projects” and other similar expressions or future or conditional verbs such as “will,” “should,” “would” and “could” are intendedhave been sold. In addition to help identify such forward-looking statements. These statements are not historical facts, but instead represent current expectations, plans or forecasts of the Company and areorigination commission, WAFD Insurance Group, Inc. may also receive contingent incentive fees based on the beliefsvolume of business generated for the insurance carrier and assumptions of the management of the Company and the information available to management at the time that these disclosures were prepared. The Company intends for all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are not guarantees of future results or performance and involve certain risks, uncertainties and assumptions that are difficult to predict and often are beyond the Company's control. Actual outcomes and results may differ materially from those expressed in, or implied by, the Company's forward-looking statements.based on policy renewal rates.
You should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties discussed elsewhere in this report, including under Item 1A. “Risk Factors,” and in any of the Company's other subsequent Securities and Exchange Commission filings, which could cause the Company's future results to differ materially from the plans, objectives, goals, estimates, intentions and expectations expressed in forward-looking statements:
a deterioration in economic conditions, including declines in the real estate market and home sale volumes and financial stress on borrowers (consumers and businesses) as a result of the uncertain economic environment;
the effects of a severe economic downturn, including high unemployment rates and declines in housing prices and property values, in the Company's primary market areas;
the effects of and changes in monetary and fiscal policies of the Board of Governors of the Federal Reserve System and the U.S. Government;
fluctuations in interest rate risk and changes in market interest rates;
the Company's ability to make accurate assumptions and judgments about the collectability of its loan portfolio, including the creditworthiness of its borrowers and the value of the assets securing these loans;
the Company's ability to successfully complete merger and acquisition activities and realize expected strategic and operating efficiencies associated with such activities;
legislative and regulatory limitations, including those arising under the Dodd-Frank Act and potential limitations in the manner in which the Company conducts its business and undertake new investments and activities;
the ability of the Company to obtain external financing to fund its operations or obtain this financing on favorable terms;

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PART I – Financial Information
Item 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD LOOKING STATEMENTS

Washington Federal, Inc. (the "Company" or "Washington Federal") makes statements in this Quarterly Report on Form 10-Q that constitute forward-looking statements. Words such as “expects,” “anticipates,” “believes,” “estimates,” “intends,” “forecasts,” “projects” and other similar expressions or future or conditional verbs such as “will,” “should,” “would” and “could” are intended to help identify such forward-looking statements. These statements are not historical facts, but instead represent current expectations, plans or forecasts of the Company and are based on the beliefs and assumptions of the management of the Company and the information available to management at the time that these disclosures were prepared. The Company intends for all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are not guarantees of future results or performance and involve certain risks, uncertainties and assumptions that are difficult to predict and often are beyond the Company's control. Actual outcomes and results may differ materially from those expressed in, or implied by, the Company's forward-looking statements.
You should not place undue reliance on any forward-looking statement and should consider the following uncertainties and risks, as well as the risks and uncertainties discussed elsewhere in this report, including under Item 1A. “Risk Factors,” and in any of the Company's other subsequent Securities and Exchange Commission ("SEC") filings, which could cause the Company's future results to differ materially from the plans, objectives, goals, estimates, intentions and expectations expressed in forward-looking statements:
a deterioration in economic conditions, including declines in the real estate market and home sale volumes and financial stress on borrowers (consumers and businesses) as a result of the uncertain economic environment;
the effects of a severe economic downturn, including high unemployment rates and declines in housing prices and property values, in the Company's primary market areas;
the effects of and changes in monetary and fiscal policies of the Board of Governors of the Federal Reserve System and the U.S. Government;
fluctuations in interest rate risk and changes in market interest rates;
the Company's ability to make accurate assumptions and judgments about the collectability of its loan portfolio, including the creditworthiness of its borrowers and the value of the assets securing these loans;
the Company's ability to successfully complete merger and acquisition activities and realize expected strategic and operating efficiencies associated with such activities;
legislative and regulatory limitations, including those arising under the Dodd-Frank Act and potential limitations
in the manner in which the Company conducts its business and undertake new investments and activities;
the ability of the Company to obtain external financing to fund its operations or obtain this financing on favorable terms;
changes in other economic, competitive, governmental, regulatory and technological factors affecting the Company's markets, operations, pricing, products, services and fees;
the success timeliness and cost of the Company’sCompany at managing the risks involved in the remediation efforts associated with its Bank Secrecy Act program, possiblecosts of enhancements to the Bank’s BSA program are greater than anticipated; and governmental authorities undertake enforcement actions of government authorities related theretoor legal proceedings with respect to the Bank’s BSA program beyond those contemplated by the Consent Order, and the potential impact of such matters on the success, timing and ability to pursue the Company’s growth or other business initiatives;
the success of the Company at managing the risks involved in the foregoing and managing its business; and
the timing and occurrence or non-occurrence of events that may be subject to circumstances beyond the Company's control.

All forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update or revise any forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, changes to future operating results over time, or the impact of circumstances arising after the date the forward-looking statement was made.
GENERAL & BUSINESS DESCRIPTION
Washington Federal, Inc. (“Company” or “Washington Federal”) is a bank holding company headquartered in Seattle, Washington that conducts its operations through Washington Federal, National Association (“Bank”), a federally chartered national bank subsidiary. Washington Federal, Inc. and

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its consolidated subsidiaries are engaged primarily in providing lending, depository, insurance and other banking services to consumers, mid-sized to large businesses, and owners and developers of commercial real estate.

The Company's fiscal year end is September 30th. All references to 20172018 represent balances as of September 30, 20172018 or activity for the fiscal year then ended.

INTEREST RATE RISK
Based on Management'smanagement's assessment of the current interest rate environment, the Company has taken steps, including growing shorter-term loans and transaction deposit accounts, to reduce its interest rate risk profile. The mix of transaction and savings accounts is 59%58% of total deposits as of December 31, 20172018 while the composition of the investment securities portfolio is 25%24% variable and 75%76% fixed rate. When interest rates rise, the fair value of the investment securities with fixed rates will decrease and vice versa when interest rates decline. The Company has $1,765,886,000$1,586,815,000 of mortgage-backed securities that it has designated as held-to-maturity and are carried at amortized cost. As of December 31, 2017,2018, the net unrealized loss on these securities was $12,544,000.$49,319,000. The Company has $1,245,855,000$1,451,340,000 of available-for-sale securities that are carried at fair value. As of December 31, 2017,2018, the net unrealized gainloss on these securities was $7,658,000.$8,008,000. The BankCompany has executed interest rate swaps to hedge interest rate risk on existingcertain FHLB borrowings. The unrealized gain on these interest rate swaps as of December 31, 20172018 was $4,997,000.$11,751,000. All of the above are pre-tax net unrealized gains or losses.

The Company relies on various measures of interest rate risk, including an asset/liability maturity gap analysis, modeling of changes in forecasted net interest income under various rate change scenarios, and the impact of interest rate changes on the net portfolio value (“NPV”) of the Company.
Net Interest Income Sensitivity. We estimateThe Company estimates the sensitivity of ourits net interest income to changes in market interest rates using an interest rate simulation model that includes assumptions related to the level of balance sheet growth, deposit repricing characteristics and the rate of prepayments for multiple interest rate change scenarios. Interest rate sensitivity depends on certain repricing characteristics in ourthe Company's interest-earnings assets and interest-bearing liabilities, including the maturity structure of assets and liabilities and their repricing characteristics during the periods of changes in market interest rates. The analysis assumes a constant balance sheet. Actual results would differ from the assumptions used in this model, as management monitors and adjusts loan and deposit pricing and the size and composition of the balance sheet to respond to changing interest rates.

In the event of an immediate and parallel increase of 200 basis points in both short and long-term interest rates, the model estimates that net interest income would increasedecrease by 1.3%2.6% in the next year. This compares to an estimated increasedecrease of 3.0%2.3% as of the September 30, 20172018 analysis. The change is primarily due to higher interest rates, lower expected prepayment speeds and shifts in the mix of fixed versus adjustable rate assets, partially offset by a decrease in the estimated deposit betas used for transaction deposits in the Company's asset liability management model. Management estimates that a gradual increase of 300 basis points in short term rates and 100 basis points in long term rates over two years would result in a net interest income increasedecrease of 0.5%1.3% in the first year and increasedecrease of 2.1%6.5% in the second year assuming a constant balance sheet and no management intervention.


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PART I – Financial Information
Item 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations

NPV Sensitivity.Sensitivity The. NPV is an estimate of the market value of shareholders' equity. ItNPV is derived by calculatingcalculated as the difference between the present value of expected cash flows from interest-earning assets and the present value of expected cash flows from interest-paying liabilities and off-balance-sheet contracts. The sensitivity of the NPV to changes in interest rates provides a longer term view of interest rate risk as it incorporates all future expected cash flows. As of December 31, 2017,2018, in the event of an immediate and parallel increase of 200 basis points in interest rates, the NPV is estimated to decline by $528,601,000$456,791,000 or 20.4%22.5% and the NPV to total assets ratio to decline to 14.2%10.6% from a base of 16.6%12.7%. As of September 30, 2017,2018, the NPV in the event of a 200 basis point increase in rates was estimated to decline by $462,604,000$452,713,000 or 18.2%20.5% and the NPV to total assets ratio to decline to 14.6%12.1% from a base of 16.6%14.2%. The increasedchange in NPV sensitivity and higherlower base NPV ratio is due primarily to higher interest rates that have resulted in lower asset prices as well as greater asset price sensitivity due to lower expected prepayment speeds on fixed rate loans and lower pricesmortgage-backed securities as of December 31, 2017.

Repricing Gap Analysis. At December 31, 2017, the Company had approximately $2,013,901,000 more in liabilities subject to maturity or repricing in the next year than assets, which resulted in a one-year repricing gap of (12.9)% of total assets. This was an increase from the (15.7)% gap as of September 30, 2017. A negative repricing gap implies that funding costs will change more rapidly than interest income on earning assets with movements in interest rates. A negative repricing gap typically results in lower margins when interest rates rise and higher margins when interest rates decline. This interest rate gap analysis provides management with a high-level indication of interest rate risk, but it is considered less reliable than more detailed modeling.2018.
Interest Rate Spread.Spread. The interest rate spread is measured as the difference between the rate on total loans and investments and the rate on costing liabilities at the end of each period. The interest rate spread increaseddecreased to 2.92%2.86% at December 31, 20172018 from 2.90% at September 30, 20172018. The spread increasedecrease of 24 basis points is primarily due to the rise in short-term interest rates, which resulted in an increaseda higher rate being paid on interest-bearing deposits and short-term FHLB borrowings partially offset by a higher rate being earned on cash and adjustable rate loans and investment securities. As of December 31, 2017,2018, the weighted average rate on earning assets increased by 310 basis points to 3.85%4.17% compared to September 30, 2017,2018, while the weighted average cost of funds increased by 114 basis pointpoints to 0.93%1.31%. The interest rate spread increaseddecreased to 2.86% at December 31, 2018 from 2.92% at December 31, 2017 from 2.73% at December 31, 2016.due to the same factors described above.

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Net Interest Margin.Margin The net. Net interest margin is measured using theas net interest income divided by average earning assets for the period. The netNet interest margin increaseddecreased to 3.21% for the quarter ended December 31, 2018 from 3.26% for the quarter ended December 31, 2017 from 3.02% for the quarter ended December 31, 2016.2017. The yield on earning assets increased 2327 basis points to 4.08%4.35% and the cost of interest bearing liabilities decreased 2increased 33 basis point to 0.91%.1.24% over that same period. The higher yield on earning assets is the result of the rise in short-term interest rates, which resulted in a higher rate being earned on cash and adjustable rate loans and investment securities, as well as the shift in mix from investment securities into a higher proportion of loans receivable whichthat carry higher yields on average. The lowerhigher rate in interest bearing liabilities was primarily due to the increase in rates on interest-bearing deposit accounts and short-term FHLB advances partially offset by the maturity of certain long-term FHLB advances.advances with higher rates.
The following table sets forth the information explaining the changes in the net interest margin for the period indicated compared to the same period one year ago.

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PART I – Financial Information
Item 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations

Three Months Ended December 31, 2017 Three Months Ended December 31, 2016Three Months Ended December 31, 2018 Three Months Ended December 31, 2017
Average Balance Interest Average Rate Average Balance Interest Average RateAverage Balance Interest Average Rate Average Balance Interest Average Rate
(In thousands) (In thousands)($ in thousands) ($ in thousands)
Assets                      
Loans receivable$10,984,886
 $124,511
 4.50% $10,013,798
 $114,835
 4.55%$11,542,621
 $137,065
 4.71% $10,984,886
 $124,511
 4.50%
Mortgaged-backed securities2,521,407
 16,899
 2.66
 2,537,585
 12,789
 2.00
2,592,535
 19,192
 2.94
 2,521,407
 16,899
 2.66
Cash & Investments559,370
 3,273
 2.32
 1,010,299
 4,246
 1.67
579,580
 4,752
 3.25
 559,370
 3,273
 2.32
FHLB & FRB stock126,229
 1,097
 3.45
 117,210
 894
 3.03
132,305
 1,613
 4.84
 126,229
 1,097
 3.45
                      
Total interest-earning assets14,191,892
 145,780
 4.08% 13,678,892
 132,764
 3.85%14,847,041
 162,622
 4.35% 14,191,892
 145,780
 4.08%
Other assets1,149,607
     1,197,304
    1,167,575
     1,149,607
    
Total assets$15,341,499
     $14,876,196
   
$16,014,616
     $15,341,499
   
                      
Liabilities and Equity                      
Customer accounts$10,850,742
 $14,638
 0.54% $10,610,314
 $13,017
 0.49%$11,436,685
 $26,579
 0.92% $10,850,742
 $14,638
 0.54%
FHLB advances2,305,978
 15,407
 2.65
 2,080,000
 16,595
 3.17
2,457,880
 16,891
 2.73
 2,305,978
 15,407
 2.65
                      
Total interest-bearing liabilities13,156,720
 30,045
 0.91% 12,690,314
 29,612
 0.93%13,894,565
 43,470
 1.24% 13,156,720
 30,045
 0.91%
Other liabilities168,382
     201,233
    129,396
     168,382
    
Total liabilities13,325,102
     12,891,547
    14,023,961
     13,325,102
    
Stockholders' equity2,016,397
     1,984,649
    1,990,655
     2,016,397
    
                      
Total liabilities and equity$15,341,499
     $14,876,196
    $16,014,616
     $15,341,499
    
                      
Net interest income  $115,735
     $103,152
    $119,152
     $115,735
  
                      
Net interest margin    3.26%     3.02%    3.21%     3.26%
As of December 31, 2017,2018, total assets had increased by $330,433,000$322,402,000 to $15,584,013,000$16,188,126,000 from $15,253,580,000$15,865,724,000 at September 30, 20172018. During the three months ended December 31, 2017,2018, cash and cash equivalents decreasedincreased by $3,357,000,$14,725,000, loans receivable increased $224,420,000$223,158,000, and investment securities increased by $98,676,000.$97,778,000.
Cash and cash equivalents of $309,713,000$283,375,000 and stockholders’ equity of $2,009,618,000$1,983,089,000 as of December 31, 20172018 provide management with flexibility in managing interest rate risk going forward.

LIQUIDITY AND CAPITAL RESOURCES

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The principal sources of funds for the Company's activities are loan repayments (including prepayments), net deposit inflows, repayments and sales of investments and borrowings and retained earnings, if applicable. The Company's principal sources of revenue are interest on loans and interest and dividends on investments.
The Bank has a credit line with the Federal Home Loan Bank of Des Moines ("FHLB") up to 45% of total assets depending on specific collateral eligibility. This line provides a substantial source of additional liquidity if needed.
The Bank has entered into borrowing agreements with the FHLB to borrow funds under a short-term floating rate cash management advance program and fixed-rate term loan agreements. All borrowings are secured by stock of the FHLB, deposits with the FHLB,

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PART I – Financial Information
Item 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations

and a blanket pledge of qualifying loans receivable as provided in the agreements with the FHLB. The Bank is also eligible to borrow under the Federal Reserve Bank's primary credit program.
The Company's cash and cash equivalents totaled $309,713,000$283,375,000 at December 31, 2017, a decrease2018, an increase from $313,070,000$268,650,000 at September 30, 2017.2018. These amounts include the Bank's operating cash.
The Company’s net worth at December 31, 20172018 was $2,009,618,000,$1,983,089,000, or 12.90%12.25% of total assets. This wasis a increasedecrease of $3,930,000$13,819,000 from September 30, 20172018 when net worth was $2,005,688,000,$1,996,908,000, or 13.15%12.59% of total assets. The Company’s net worth was impacted in the three months ended December 31, 20172018 by net income of $51,670,000,$52,942,000, the payment of $13,043,000$14,638,000 in cash dividends, treasury stock purchases of $38,984,000,$48,930,000, as well as an other comprehensive incomeloss of $2,989,000.$5,403,000. The ratio of tangible capital to tangible assets at December 31, 20172018 was 11.12%10.53%. Management believes the Company's strong net worth position allows it to manage balance sheet risk and provide the capital support needed for controlled growth in a regulated environment.
The Company (on a consolidated basis)Washington Federal, Inc. and its banking subsidiary are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company and the Bank'sCompany's financial statements.
Federal banking agencies establish regulatory capital rules whichthat require minimum capital ratios and establish criteria for calculating regulatory capital. Minimum capital ratios for four measures are used for assessing capital adequacy. The standards are indicated in the table below. The common equity tier 1 capital ratio recognizes common equity as the highest form of capital. The denominator for all except the leverage ratio is risk weighted assets. The rules set forth a “capital conservation buffer” of up to 2.5%. In the event that a bank’s capital levels fall below the minimum ratios plus these buffers, the bank's regulators may place restrictions can be placed on the bank by its regulators.it. These restrictions include reducing dividend payments, share buy-backs, and staff bonus payments. The purpose of these buffers is to require banks to build up capital outside of periods of stress that can be drawn down during periods of stress. As a result, even during periods where losses are incurred, the minimum capital ratios can still be met. The capital rules that became effective in January 2015 include a phase-in period for certain minimum ratios and the capital buffers, before the full minimum ratios take effect in 2019. Management continues to monitor the financial position of the Company and its capital ratios as the rules phase in.

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PART I – Financial Information
Item 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations

There are also standards for Adequate and Well Capitalized criteria that are used for “Prompt Corrective Action” purposes. To remain categorized as well capitalized, the Bank and the Company must maintain minimum common equity risk-based, tier 1 risk-based, total risk-based and tier 1 leverage ratios as set forth in the following table.
Actual 
Minimum Capital
Adequacy Guidelines
 Minimum Well-Capitalized GuidelinesActual 
Minimum Capital
Adequacy Guidelines
 Minimum Well-Capitalized Guidelines
($ in thousands)Capital Ratio Ratio Ratio
Capital Ratio Ratio Ratio 
(In thousands)
December 31, 2017       
December 31, 2018       
Common Equity Tier I risk-based capital ratio:              
The Company$1,691,303
 16.14% 4.50% NA
$1,670,577
 14.44% 4.50% NA
The Bank1,662,981
 15.87% 4.50% 6.50%1,663,692
 14.38% 4.50% 6.50%
Tier I risk-based capital ratio:              
The Company1,691,303
 16.14% 6.00% NA
1,670,577
 14.44% 6.00% NA
The Bank1,662,981
 15.87% 6.00% 8.00%1,663,692
 14.38% 6.00% 8.00%
Total risk-based capital ratio:              
The Company1,822,321
 17.39% 8.00% NA
1,807,992
 15.63% 8.00% NA
The Bank1,794,017
 17.12% 8.00% 10.00%1,801,107
 15.56% 8.00% 10.00%
Tier 1 Leverage ratio:              
The Company1,691,303
 11.26% 4.00% NA
1,670,577
 10.63% 4.00% NA
The Bank1,662,981
 11.07% 4.00% 5.00%1,663,692
 10.58% 4.00% 5.00%
              
September 30, 2017       
September 30, 2018       
Common Equity Tier 1 risk-based capital ratio:              
The Company1,701,327
 16.67% 4.50% NA
$1,678,475
 14.71% 4.50% NA
The Bank1,668,314
 16.35% 4.50% 6.50%1,661,628
 14.55% 4.50% 6.50%
Tier I risk-based capital ratio:              
The Company1,701,327
 16.67% 6.00% NA
1,678,475
 14.71% 6.00% NA
The Bank1,668,314
 16.35% 6.00% 8.00%1,661,628
 14.55% 6.00% 8.00%
Total risk-based capital ratio:              
The Company1,828,935
 17.92% 8.00% NA
1,814,981
 15.91% 8.00% NA
The Bank1,795,929
 17.60% 8.00% 10.00%1,798,135
 15.75% 8.00% 10.00%
Tier 1 Leverage ratio:              
The Company1,701,327
 11.49% 4.00% NA
1,678,475
 10.85% 4.00% NA
The Bank1,668,314
 11.27% 4.00% 5.00%1,661,628
 10.74% 4.00% 5.00%

CHANGES IN FINANCIAL CONDITION
Cash and cash equivalents: Cash and cash equivalents are $309,713,000$283,375,000 at December 31, 2017, a decrease2018, an increase of $3,357,000,$14,725,000, or 1.1%5.5%, since September 30, 2017.2018.

Available-for-sale and held-to-maturity investment securities: Available-for-sale securities decreased $20,354,000,increased $136,383,000, or 1.6%10.4%, during the three months ended December 31, 2017,2018, mostly due to purchases of $172,076,000 and a decrease in the net unrealized loss of $3,515,000, partially offset by principal repayments and maturities of $58,261,000 partially offset by purchases of $40,884,000.$38,118,000. During the same period, the balance of held-to-maturity securities increaseddecreased by $119,030,000$38,605,000 primarily due to purchases of $170,836,000 partially offset by principal paydownspay-downs and maturities of $50,653,000.$37,736,000. As of December 31, 2017,2018, the Company

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Item 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations

had a net unrealized gainloss on available-for-sale securities of $7,658,000,$8,008,000, which is included on a net of tax basis in accumulated other comprehensive income (loss).


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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

Loans receivable: Loans receivable, net of related contra accounts, increased by $223,158,000 to $11,107,042,000$11,700,239,000 at December 31, 20172018, compared to $10,882,622,00011,477,081,000 at September 30, 20172018. The increase resulted primarily from originations of $953,552,000 and purchases of $143,605,000,$1,044,766,000 partially offset by loan principal repayments of $859,583,000.$871,794,000. Commercial loan originations accounted for 70%73% of total originations and consumer loan originations were 30%27% during the period. Purchased loans during the quarter were pools of consumer loans. The increase in the loan portfolio is consistent with management's strategy during low rate environments to produce more multifamily, commercial real estate, and commercial and industrial loans that generally have adjustable interest rates or a shorter duration.
The following table shows the loan portfolio by category and the change.

December 31, 2017 September 30, 2017 ChangeDecember 31, 2018 September 30, 2018 Change
(In thousands) (In thousands) $%($ in thousands) ($ in thousands) $%
Gross loans by category                
Single-family residential$5,693,318
45.7% $5,711,004
46.8% $(17,686)(0.3)%$5,844,963
44.9% $5,798,966
45.1% $45,997
0.8 %
Construction1,710,418
13.7
 1,597,996
13.1
 112,422
7.0
1,841,674
14.1
 1,890,668
14.7
 (48,994)(2.6)
Construction - custom583,580
4.7
 602,631
4.9
 (19,051)(3.2)607,071
4.7
 624,479
4.9
 (17,408)(2.8)
Land - acquisition & development136,938
1.1
 124,308
1.0
 12,630
10.2
181,323
1.4
 155,204
1.2
 26,119
16.8
Land - consumer lot loans105,086
0.8
 104,405
0.9
 681
0.7
100,563
0.8
 102,036
0.8
 (1,473)(1.4)
Multi-family1,312,695
10.5
 1,303,148
10.7
 9,547
0.7
1,405,172
10.8
 1,385,125
10.8
 20,047
1.4
Commercial real estate1,436,508
11.5
 1,434,610
11.8
 1,898
0.1
1,526,887
11.7
 1,452,168
11.3
 74,719
5.1
Commercial & industrial1,120,707
9.0
 1,093,360
9.0
 27,347
2.5
1,213,738
9.3
 1,140,874
8.9
 72,864
6.4
HELOC136,995
1.1
 144,850
1.2
 (7,855)(5.4)136,856
1.1
 130,852
1.0
 6,004
4.6
Consumer219,971
1.8
 85,075
0.7
 134,896
158.6
162,221
1.2
 173,306
1.3
 (11,085)(6.4)
Total gross loans12,456,216
100% 12,201,387
100% 254,829
2.1 %13,020,468
100% 12,853,678
100% 166,790
1.3 %
Less:                
Allowance for loan losses127,155
  123,073
  4,082
3.3 %131,165
  129,257
  1,908
1.5 %
Loans in process1,175,642
  1,149,934
  25,708
2.2
1,138,308
  1,195,506
  (57,198)(4.8)
Net deferred fees, costs and discounts46,377
  45,758
  619
1.4
50,756
  51,834
  (1,078)(2.1)
Total loan contra accounts1,349,174
  1,318,765
  30,409
2.3
1,320,229
  1,376,597
  (56,368)(4.1)
Net Loans$11,107,042
  $10,882,622
  $224,420
2.1 %$11,700,239
  $11,477,081
  $223,158
1.9 %
 
Non-performing assets: Non-performing assets decreased $6,790,000$7,363,000 during the three months ended December 31, 20172018 to $63,448,000$62,730,000 from $70,238,000$70,093,000 at September 30, 20172018. The change is due to the $4,060,000a $4,236,000 decrease in non-accrual loans and $2,730,000$3,127,000 decline in REO.real estate owned ("REO"). Non-performing assets as a percentage of total assets decreased to 0.41%was 0.39% at December 31, 20172018 compared to 0.46%0.44% at September 30, 20172018.




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PART I – Financial Information
Item 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following table sets forth information regarding restructured loans and non-performing assets.
December 31,
2017		 September 30,
2017		December 31,
2018		 September 30,
2018
(In thousands)($ in thousands)
Restructured loans:              
Single-family residential$170,601
 85.7% $181,941
 87.8%$133,808
 89.4% $139,797
 89.1%
Land - acquisition & development—
 —
 90
 —
103
 0.1
 107
 0.1
Land - consumer lot loans7,405
 3.7
 7,949
 3.8
4,601
 3.1
 4,916
 3.1
Multi - family480
 0.2
 493
 0.2
435
 0.3
 448
 0.3
Commercial real estate11,910
 6.0
 15,079
 7.3
5,552
 3.7
 6,254
 4.0
Commercial & industrial7,256
 3.6
 —
 —
4,159
 2.8
 4,290
 2.7
HELOC1,432
 0.7
 1,728
 0.8
968
 0.6
 976
 0.6
Consumer91
 —
 97
 —
67
 —
 70
 —
Total restructured loans (1)$199,175
 100% $207,377
 100%$149,693
 100% $156,858
 100%
       
Non-accrual loans:              
Single-family residential$26,219
 57.6% $27,930
 56.3%$24,748
 48.1% $27,643
 49.6%
Construction364
 0.8
 —
 —
1,380
 2.7
 2,427
 4.4
Construction - custom—
 —
 91
 0.2
—
 —
 —
 —
Land - acquisition & development1,326
 2.9
 296
 0.6
438
 0.9
 920
 1.7
Land - consumer lot loans976
 2.1
 605
 1.2
785
 1.5
 787
 1.4
Multi-family250
 0.5
 139
 0.3
—
 —
 —
 —
Commercial real estate8,241
 18.1
 11,815
 23.8
9,478
 18.4
 8,971
 16.1
Commercial & industrial7,596
 16.7
 8,082
 16.3
13,995
 27.2
 14,394
 25.8
HELOC476
 1.0
 531
 1.1
599
 1.2
 523
 0.9
Consumer72
 0.2
 91
 0.2
27
 0.1
 21
 —
Total non-accrual loans (2)45,520
 100% 49,580
 100%
Total non-accrual loans51,450
 100% 55,686
 100%
Real estate owned17,928
   20,658
  8,171
   11,298
  
Other property owned3,109
   3,109
  
Total non-performing assets$63,448
   $70,238
  $62,730
   $70,093
  
Total non-performing assets and performing restructured loans as a percentage of total assets1.65%   1.79%  1.28%   1.39%  
       
Total Assets       
(1) Restructured loans were as follows:              
Performing$194,359
 97.6% $202,272
 97.5%$143,768
 96.0% $150,667
 96.1%
Non-performing (included in non-accrual loans above)4,816
 2.4
 5,105
 2.5
5,925
 4.0
 6,191
 3.9
$199,175
 100% $207,377
 100%$149,693
 100% $156,858
 100%

(2)For the three months ended December 31, 2017, the Company recognized $2,551,000 in interest income on cash payments received from borrowers on non-accrual loans. The Company would have recognized interest income of $489,000 for the same period had these loans performed according to their original contract terms. The recognized interest income may include more than three months of interest for some of the loans that were brought current. In addition to the non-accrual loans reflected in the above table, the Company had $56,133,000 of loans that were less than 90 days delinquent at December 31, 2017 but which it had classified as substandard for one or more reasons. If these loans were deemed non-performing, the Company's ratio of total NPAs and performing restructured loans as a percent of total assets would have increased to 2.01% at December 31, 2017.
For the three months ended December 31, 2018, the Company recognized $843,000 in interest income on cash payments received from borrowers on non-accrual loans. The Company would have recognized interest income of $587,000 for the same period had these loans performed according to their original contract terms. 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. In addition to the non-accrual loans reflected in the above table, the Company had $43,479,000 of loans that were less than 90 days delinquent at December 31, 2018 but were classified as substandard for one or more reasons. If these loans were deemed non-performing, the Company's ratio of total NPAs and performing restructured loans as a percent of total assets would have increased to 1.54% at December 31, 2018.
Restructured single-family residential loans are reserved for under the Company’s general reserve methodology. If any individual loan is significant in balance, the Company may establish a specific reserve as warranted.

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PART I – Financial Information
Item 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations

Most restructured loans are accruing and performing loans where the borrower has proactively approached the Bank about modifications due to temporary financial difficulties. Each request is individually evaluated for merit and likelihood of success. Single-family residential loans comprised 85.7%89.4% of restructured loans as of December 31, 2017.2018. The concession for these loans is typically a payment reduction through a rate reduction of 100 to 200 bps for a specific term, usually six to twenty fourtwenty-four months. Interest-only payments may also be approved during the modification period.
For commercial loans, six consecutive payments on newly restructured loan terms are generally required prior to returning the loan to accrual status. In some instances after the required six consecutive payments are made, a management assessment will conclude that collection of the entire principal balance is still in doubt. In those instances, the loan will remain on non-accrual. Homogeneous loans may or may not be on accrual status at the time of restructuring, but all are placed on accrual status upon the restructuring of the loan. Homogeneous loans are restructured only if the borrower can demonstrate the ability to meet the restructured payment terms; otherwise, collection is pursued and the loan remains on non-accrual status until liquidated. If the homogeneous restructured loan does not perform, it will be placed in non-accrual status when it is 90 days delinquent.
A loan that defaults and is subsequently modified would impact the Company’s delinquency trend, which is part of the qualitative risk factors component of the general reserve calculation. Any modified loan that re-defaults and is charged-off would impact the historical loss factors component of the Company's general reserve calculation.
Allowance for loan losses: The following table shows the Company’s allowance for loan losses by loan category.
December 31, 2017Loans Collectively Evaluated for Impairment Loans Individually Evaluated for Impairment
December 31, 2018Loans Collectively Evaluated for Impairment Loans Individually Evaluated for Impairment
Allowance Allocation Recorded Investment of Loans Ratio Allowance Allocation Recorded Investment of Loans RatioAllowance Allocation Recorded Investment of Loans Ratio Allowance Allocation Recorded Investment of Loans Ratio
(In thousands)   (In thousands)($ in thousands) ($ in thousands)
Single-family residential$35,928
 $5,676,565
 0.6% $—
 $24,083
 —%$31,484
 $5,833,667
 0.5% $—
 $16,259
 —%
Construction25,214
 851,800
 3.0
 —
 364
 —
31,463
 1,045,849
 3.0
 —
 1,380
 —
Construction - custom2,052
 292,255
 0.7
 —
 —
 —
1,926
 299,622
 0.6
 —
 —
 —
Land - acquisition & development7,355
 110,884
 6.6
 —
 1,376
 —
9,147
 145,197
 6.3
 9
 438
 2.1
Land - consumer lot loans2,906
 97,291
 3.0
 —
 416
 —
2,144
 95,628
 2.2
 —
 303
 —
Multi-family7,899
 1,311,943
 0.6
 5
 730
 0.7
7,880
 1,404,714
 0.6
 4
 435
 0.9
Commercial real estate11,519
 1,389,749
 0.8
 106
 27,535
 0.4
12,569
 1,512,064
 0.8
 142
 14,823
 1.0
Commercial & industrial28,744
 1,108,961
 2.6
 524
 11,694
 4.5
29,934
 1,199,565
 2.5
 345
 14,206
 2.4
HELOC808
 134,320
 0.6
 —
 620
 —
1,064
 135,369
 0.8
 —
 519
 —
Consumer4,095
 219,784
 1.9
 —
 70
 —
3,054
 161,958
 1.9
 —
 162
 —
$126,520
 $11,193,552
 1.1% $635
 $66,888
 0.9%$130,665
 $11,833,633
 1.1% $500
 $48,525
 1.0%



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PART I – Financial Information
Item 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations

September 30, 2017Loans Collectively Evaluated for Impairment Loans Individually Evaluated for Impairment
September 30, 2018Loans Collectively Evaluated for Impairment Loans Individually Evaluated for Impairment
Allowance Allocation Recorded Investment of Loans Ratio Allowance Allocation Recorded Investment of Loans RatioAllowance Allocation Recorded Investment of Loans Ratio Allowance Allocation Recorded Investment of Loans Ratio
(In thousands)   (In thousands)($ in thousands) ($ in thousands)
Single-family residential$36,893
 $5,713,576
 0.7% $—
 $5,552
 —%$33,033
 $5,782,870
 0.6% $—
 $21,345
 —%
Construction24,556
 793,958
 3.1
 —
 —
 —
31,317
 1,060,428
 3.0
 —
 2,427
 —
Construction - custom1,944
 277,495
 0.7
 —
 105
 —
1,842
 289,192
 0.6
 —
 —
 —
Land - acquisition & development6,828
 104,767
 6.5
 1
 89
 1.0
7,969
 122,639
 6.5
 9
 920
 1.0
Land - consumer lot loans2,649
 96,337
 2.8
 —
 171
 —
2,164
 96,583
 2.2
 —
 507
 —
Multi-family7,857
 1,302,625
 0.6
 5
 493
 1.0
8,325
 1,384,655
 0.6
 4
 448
 1.0
Commercial real estate11,697
 1,391,668
 0.8
 120
 21,765
 0.6
11,702
 1,432,791
 0.8
 150
 19,378
 0.8
Commercial & industrial28,524
 1,093,210
 2.6
 —
 81
 —
28,348
 1,126,438
 2.5
 354
 14,437
 2.5
HELOC855
 141,689
 0.6
 —
 215
 —
781
 128,715
 0.6
 —
 1,162
 —
Consumer1,144
 84,887
 1.4
 —
 82
 —
3,259
 173,181
 1.9
 —
 56
 —
$122,947
 $11,000,212
 1.1% $126
 $28,553
 0.4%$128,740
 $11,597,492
 1.1% $517
 $60,680
 0.9%

Reserve for losses on unfunded commitments: Unfunded commitments tend to vary depending on ourthe Company's loan mix and the proportionproportionate share of commercial loans. The balance of unfunded commitments was $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. The reserve for unfunded commitments was $6,750,000$6,250,000 as of December 31, 2017,2018, which is a decrease from $7,750,000$7,250,000 at September 30, 2017. 2018.
Management believes the allowance for loan losses plus the reserve for unfunded commitments, totaling $133,905,000,$137,415,000, or 1.08%1.06% of gross loans, is sufficient to absorb estimated losses inherent in the portfolio.portfolio of loans and unfunded commitments. See Note E for further discussion and analysis of the allowance for loan losses as of and for the period ended December 31, 2017.2018.

Real estate owned: Real estate ownedREO decreased during the three months ended December 31, 20172018 by $2,730,000$3,127,000 to $17,928,000. The decrease is$8,171,000, primarily due to sales of REO properties during the period.

Intangible assets: Intangible assets increaseddecreased to $310,578,000$310,776,000 as of December 31, 20172018 from $298,682,000$311,286,000 as of September 30, 2017.2018. The increasedecrease was due to an immaterial correction related to acquisitionsamortization of insurance agency businesses in prior years that resulted in an increase in goodwill of $7,135,000 and finite-lived intangible assets of $5,106,000 and a corresponding decrease in other assets of $12,241,000.assets.



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PART I – Financial Information
Item 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations

Customer accounts: Customer accounts increased $166,571,000,$174,546,000, or 1.5%, to $11,001,579,000$11,561,692,000 at December 31, 20172018 compared with $10,835,008,000$11,387,146,000 at September 30, 2017.2018.

The following table shows the composition of the Bank’s customer accounts by deposit type.
December 31, 2017 September 30, 2017December 31, 2018 September 30, 2018
Deposit Account Balance As a % of Total Deposits 
Wtd. Avg.
Rate
 Deposit Account Balance As a % of Total Deposits 
Wtd. Avg.
Rate
Deposit Account Balance As a % of Total Deposits 
Wtd. Avg.
Rate
 Deposit Account Balance As a % of Total Deposits 
Wtd. Avg.
Rate
(In thousands)
     (In thousands)
    
($ in thousands)           
Non-interest checking$1,299,602
 11.8% —% $1,258,274
 11.6% —%$1,409,236
 12.2% —% $1,401,226
 12.3% —%
Interest checking1,848,594
 16.8
 0.28
 1,760,821
 16.3
 0.23
1,881,740
 16.3
 0.64
 1,778,520
 15.6
 0.50
Savings (passbook/statement)894,879
 8.1
 0.12
 888,881
 8.2
 0.11
807,608
 7.0
 0.11
 836,501
 7.3
 0.11
Money market2,439,537
 22.2
 0.19
 2,453,182
 22.6
 0.19
2,645,762
 22.9
 0.76
 2,566,096
 22.5
 0.65
Time deposits4,518,967
 41.1
 1.14
 4,473,850
 41.3
 1.09
4,817,346
 41.7
 1.69
 4,804,803
 42.2
 1.50
Total$11,001,579
 100% 0.57% $10,835,008
 100% 0.54%$11,561,692
 100% 0.99% $11,387,146
 100% 0.87%

FHLB advances and other borrowings: Total borrowings increased to $2,415,000,000$2,540,000,000 as of December 31, 20172018 from $2,225,000,000$2,330,000,000 as of September 30, 2017.2018. The weighted average rate for FHLB borrowings was 2.56%2.75% as of December 31, 20172018 and 2.80%2.66% at September 30, 2017.2018. The increase was due to higher rates on short-term FHLB advances.

Stockholders' equity: The Company’s total stockholders' equity at December 31, 2018 was $1,983,089,000, or 12.25% of total assets. This was a decrease of $13,819,000 from the September 30, 2018 total of $1,996,908,000, or 12.59% of total assets. The Company’s equity was impacted in the rate was primarily due tothree months ended December 31, 2018 by net income of $52,942,000, the maturitypayment of certain long-term FHLB advances.$14,638,000 in cash dividends, treasury stock purchases of $48,930,000, as well as an other comprehensive loss of $5,403,000.

RESULTS OF OPERATIONS
Net Income: The Company recorded net income of $51,670,000$52,942,000 for the three months ended December 31, 20172018 compared to $41,246,000$51,670,000 for the prior year quarter.

Net Interest Income: For the three months ended December 31, 2017,2018, net interest income was $115,735,000$119,152,000, which is $12,583,000$3,417,000 higher than the same quarter of the prior year. Net interest margin was 3.21% for the quarter ended December 31, 2018 compared to 3.26% for the quarter ended December 31, 2017 compared to 3.02% for the quarter ended December 31, 2016.2017. The increase in net interest income was primarily due to the average balance of earning assets increasing by $513,000,000 as well as$655,149,000 and the yield on earning assets increasing to 4.08%4.35% from 3.85%.4.08%, partially offset by a higher average rate paid on interest-bearing liabilities, which was 1.24% for the three months ended December 31, 2018 compared to 0.91% for the same quarter one year ago. The increasehigher yield on earning assets is the result of the rise in netshort-term interest marginrates, which resulted in a higher rate being earned on cash and adjustable rate loans and investment securities, as well as the shift in mix from investment securities into a higher proportion of loans receivable that carry higher yields on average. The higher rate on interest-bearing liabilities was primarily due to the shiftincrease in asset mix from cashrates on interest-bearing deposit accounts and investment securities toshort-term FHLB advances, partially offset by the maturity of certain long-term FHLB advances with higher yielding loans receivable.rates.

The following table sets forth certain information explaining changes in interest income and interest expense for the period indicated compared to the same period one year ago. For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to (1) changes in volume (changes in volume multiplied by old rate) and (2) changes in rate (changes in rate multiplied by old volume). The change in interest income and interest expense attributable to changes in both volume and rate has been allocated proportionately to the change due to volume and the change due to rate.

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART I – Financial Information
Item 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations

Rate / Volume Analysis:
Comparison of Three Months Ended
12/31/17 and 12/31/16
Comparison of Three Months Ended
12/31/18 and 12/31/17
Volume Rate Total
(In thousands)
($ in thousands)Volume Rate Total
Interest income:          
Loans receivable$10,935
 $(1,259) $9,676
$6,539
 $6,015
 $12,554
Mortgaged-backed securities(81) 4,191
 4,110
485
 1,808
 2,293
Investments (1)(2,401) 1,631
 (770)173
 1,822
 1,995
All interest-earning assets8,453
 4,563
 13,016
7,197
 9,645
 16,842
Interest expense:          
Customer accounts295
 1,326
 1,621
850
 11,091
 11,941
FHLB advances and other borrowings1,681
 (2,869) (1,188)1,018
 466
 1,484
All interest-bearing liabilities1,976
 (1,543) 433
1,868
 11,557
 13,425
Change in net interest income$6,477
 $6,106
 $12,583
$5,329
 $(1,912) $3,417
___________________ 
(1)Includes interest on cash equivalents and dividends on FHLB & FRB stockstock.
Provision (Release) for Loan Losses: The Company recorded no provisiona release of loan loss allowance of $500,000 for loan losses during the three months ended December 31, 2017 or2018, compared with no provision for loan losses for the three months ended December 31, 2016.2017. 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 $3,082,000$1,408,000 for the three months ended December 31, 2017,2018, compared to net recoveries of $5,296,000$3,082,000 during the three months ended December 31, 2016.2017.

Other Income: The three months ended December 31, 20172018 results include total other income of $6,795,000$19,009,000 compared to $11,896,000$6,795,000 for the same period one year ago.ago, a $12,214,000 increase. The decrease duringincrease is primarily due to a net gain of $6,400,000 recognized this quarter from the sale and valuation adjustments of fixed assets as well as $8,550,000 of expense from FDIC loss share valuation adjustments in the three months ended December 31, 2017 is primarily due to a $8,550,000 charge from asset and liability valuation adjustments associated with FDIC loss share agreements. The Company is actively pursuing the early termination of its remaining FDIC loss share agreements. The impact of these valuation adjustments was partially offset by a $2,416,000 gain recognized on bank-owned life insurance and a $1,501,000 increase in deposit fee income, which was driven by the 2017 launch of the Company's new "Green Checking" product. Deposit fee income was $6,686,000 for the three months ended December 31, 2017 compared to $5,185,000 for the three months ended December 31, 2016.2017.

Other Expense: The three months ended December 31, 20172018 results include total other expense of $61,941,000$71,672,000 compared to $54,341,000$61,941,000 for the same period one year ago, a $7,600,000$9,731,000 or 14.0%15.7% increase. The Company recognized $3,600,000 of non-recurring expense during the three months ended December 31, 2018 related to enhancements of its Bank Secrecy Act ("BSA") program and estimates that it will incur an additional $2,000,000 of non-recurring BSA related costs spread over the next two quarters. The Company has taken the opportunity allotted by the change in the tax law to make several strategic investments that have resulted in a higher level of operating expenses year over year. Those investments included a 5% salary increase for all employees earning less than $100,000; the establishment of a second technology team located in Boise, Idaho; the creation of an internal training team; and several new platform and system enhancements. Compensation and benefits costs increased $2,625,000$4,264,000 primarily due to headcount increases, the aforementioned salary increases and cost of living adjustments since last year. The number of staff, including part-time employees on a full-time equivalent basis, was 1,8291,910 and 1,8131,829 at December 31, 20172018 and 2016,2017, respectively. Information technology costs increased by $1,478,000$1,111,000 and other expenses increased by $3,652,000 for the three months ended December 31, 20172018 as both were elevated primarily due mostly to consulting and audit work to enhance the Company'saforementioned Bank Secrecy Act Program. Additionally, charitable contributions increased by $1,000,000 from the prior year as the Company fulfilled the first year of its previously announced commitment to fund its foundation by $1,000,000 annually for the next five years. Product delivery costs increased by $595,000 primarily due to enhanced features provided with the "Green Checking" product.program enhancements and other technology platform initiatives. Total other expense for the three months ended endedDecember 31, 2018 and December 31, 2017 equaled 1.79% and 2016 equaled 1.62% and 1.46%, respectively, of average assets.

Gain (Loss) on Real Estate Owned:Owned: Results for the three months ended December 31, 20172018 include a net gain on real estate owned of $46,000,$320,000, compared to a gain of $398,000$46,000 for the same period one year ago.

Income Tax Expense: Income tax expense totaled $8,965,000$14,367,000 for the three months ended December 31, 2017, as2018, compared to $19,859,000$8,965,000 for the same period one year ago. The effective tax rate for the three months ended December 31, 20172018 was 14.79%21.35% compared to 32.50%14.79% for the quarterthree months ended December 31, 20162017 and 32.27%20.76% for the full fiscal year ended September 30, 2017. On December 22, 2017, the Tax Cuts and Jobs Act was enacted and it provides for significant changes to the U.S. Internal Revenue Code of 1986, as amended, such as a reduction in the statutory federal corporate tax rate from 35% to 21% effective from January 1, 2018 forward and changes or limitations to certain tax deductions. The Company has a fiscal year end of September 30, so the change to the statutory corporate tax rate results in a blended federal statutory tax rate of 24.5% for its fiscal year 2018. The

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART I – Financial Information
Item 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations

financial statements for the first fiscal quarter 2018 were also impacted by a one-time revaluation of the Company’s deferred tax assets and liabilities and this was recognized as a discrete income tax benefit in the period. The Company estimates that its annual effective tax rate for fiscal 2018 (blended rate year) will be approximately 22-23%. The effective tax rate for the current quarterthree months ended December 31, 2017 was lower than the new 2018 statutory rate due to discrete tax benefits of $3,743,000 recognized related to the revaluation of deferred tax assets and liabilities expected to be utilized in 2018stemming from tax reform as well as tax benefits of $2,205,000 related to stock baseditems such as the excess deduction for stock-based compensation.


Item 3.        Quantitative and Qualitative Disclosures About Market Risk
Management believes that there have been no material changes in the Company’s quantitative and qualitative information about market risk since September 30, 20172018. For a complete discussion of the Company’s quantitative and qualitative market risk, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 20172018 Form 10-K.

Item 4.        Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures. The Company maintains a set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Company's management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management has evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report (the "Evaluation Date"). Based on the evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures are effective.

(b) Changes in Internal Control over Financial Reporting. During the period to which this report relates, there have not been any changes in the Company's internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or that are reasonably likely to materially affect, such controls.

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PART II – Other Information
Item 1. Legal Proceedings
From time to time, the Company and its subsidiaries are engaged in legal proceedings in the ordinary course of business, none of which are considered to have a material impact on the Company’s consolidated financial statements.

Item 1A. Risk Factors

In addition to the other information set forth below and in this report, you should carefully consider the factors discussed under "Part I--Item 1A--Risk Factors" in the 20172018 Form 10-K for the year ended September 30, 2017.2018. These factors could materially and adversely affect the Company's business, financial condition, liquidity, results of operations and capital position, and could cause its actual results to differ materially from ourits historical results or the results contemplated by the forward-looking statements contained in this report.

Item 2.        Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information with respect to purchases made by or on behalf of the Company of the Company’s common stock during the three months ended December 31, 2017.2018. 
Period
Total Number of
Shares Purchased
 
Average Price
Paid Per Share
 
Total Number of
Shares Purchased
as Part of  Publicly
Announced Plan (1)
 
Maximum
Number of Shares
That May Yet Be
Purchased Under
the Plan at the
End of the Period (2)
October 1, 2017 to October 31, 201774,453
 $34.79
 74,453
 1,826,502
November 1, 2017 to November 30, 2017744,353
 33.75
 744,353
 1,082,149
December 1, 2017 to December 31, 2017328,564
 34.30
 328,564
 753,585
Total1,147,370
  $33.98
  1,147,370
 753,585
Period
Total Number of
Shares Purchased
 
Average Price
Paid Per Share
 
Total Number of
Shares Purchased
as Part of  Publicly
Announced Plan (1)
 
Maximum
Number of Shares
That May Yet Be
Purchased Under
the Plan at the
End of the Period
October 1, 2018 to October 31, 20181,074,875
 $28.97
 1,074,875
 957,723
November 1, 2018 to November 30, 2018156,336
 27.60
 156,336
 801,387
December 1, 2018 to December 31, 2018508,981
 26.48
 508,981
 292,406
Total1,740,192
  $28.12
  1,740,192
 292,406
 ___________________
(1)The Company's stock repurchase program was publicly announced by its Board of Directors on February 3, 1995 and has no expiration date. Under this ongoing program, a total of 51,956,26456,956,264 shares have beenwere authorized for repurchase. This includes the authorization of an additional 5,000,000 shares that may be repurchased under Washington Federal's share repurchase program that was approved in September 2016. This does not include the 5,000,00010,000,000 additional shares authorized by the Board of Directors on January 24, 2018.
(2)Shares remaining available reflects the impact of TARP warrants that have been repurchased for cash as management also counts these against the maximum number of shares that may be repurchased under the Plan.16, 2019.

Item 3.        Defaults Upon Senior Securities
Not applicable

Item 4.        Mine Safety Disclosures
Not applicable

Item 5.        Other Information
Not applicable


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Item 6.        Exhibits
(a) Exhibits
 
  31.1 
Section 302 Certification by the Chief Executive Officer
  31.2 
Section 302 Certification by the Chief Financial Officer
  32 
Section 906 Certification by the Chief Executive Officer and Chief Financial Officer
  101 Financial Statements from the Company’s Form 10-Q for the three months ended December 31, 20172018 formatted in XBRL

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
January 25, 20182019
/S/    BRENT J. BEARDALL        
 
BRENT J. BEARDALL
President & Chief Executive Officer
  
January 25, 20182019
/S/    VINCENT L. BEATTY       
 
VINCENT L. BEATTY
Executive Vice President and Chief Financial Officer
  
January 25, 20182019
/S/    CORY D. STEWART      
 
CORY D. STEWART
Senior Vice President and Principal Accounting Officer

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