UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30,~~December 31, 2018



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-34654

WASHINGTON FEDERAL, INC.

(Exact name of registrant as specified in its charter)



Washington		91-1661606
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

425 Pike Street Seattle, Washington 98101
(Address of principal executive offices and zip code)
(206) 624-7930
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 ("Exchange Act") during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	o
Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Title of class:	~~July~~January 24, ~~2018~~2019
Common stock, $1.00 par value	~~83,537,545~~81,112,469

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 ~~June 30,~~December 31, 2018 and September 30, ~~2017~~2018	3

	Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2018 and ~~June 30,~~December 31, 2017	4

	Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2018 and ~~June 30,~~December 31, 2017	5

	Consolidated Statements of Stockholders' Equity for the ~~nine~~three months ended ~~June 30,~~December 31, 2018 and ~~June 30,~~December 31, 2017	6

	Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~June 30,~~December 31, 2018 and ~~June 30,~~December 31, 2017	7

	Notes to Interim Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3536

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4647

Item 4.	Controls and Procedures	4647

PART II

Item 1.	Legal Proceedings	4748

Item 1A.	Risk Factors	4748

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48

Item 3.	Defaults Upon Senior Securities	48

Item 4.	Mine Safety Disclosures	48

Item 5.	Other Information	48

Item 6.	Exhibits	4849

	Signatures	4950

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)


	June 30, 2018			September 30, 2017			December 31, 2018			September 30, 2018
	(In thousands, except share data)						(In thousands, except share data)
ASSETS
Cash and cash equivalents	$	345,919		$	313,070		$	283,375		$	268,650
Available-for-sale securities, at fair value	1,255,401			1,266,209			1,451,340			1,314,957
Held-to-maturity securities, at amortized cost	1,670,450			1,646,856			1,586,815			1,625,420
Loans receivable, net of allowance for loan losses of $128,666 and $123,073	11,325,971			10,882,622
Loans receivable, net of allowance for loan losses of $131,165 and $129,257							11,700,239			11,477,081
Interest receivable	43,670			41,643			48,207			47,295
Premises and equipment, net	269,674			263,694			276,683			267,995
Real estate owned	11,275			20,658			8,171			11,298
FHLB and FRB stock	128,790			122,990			135,590			127,190
Bank owned life insurance	214,752			211,330			217,751			216,254
Intangible assets, including goodwill of $301,368 and $293,153	311,796			298,682
Intangible assets, including goodwill of $301,368 and $301,368							310,776			311,286
Federal and state income tax assets, net	4,293			—			—			1,804
Other assets	184,330			185,826			169,179			196,494
	$	15,766,321		$	15,253,580		$	16,188,126		$	15,865,724
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Customer accounts
Transaction deposit accounts	$	6,572,766		$	6,361,158		$	6,744,346		$	6,582,343
Time deposit accounts	4,714,707			4,473,850			4,817,346			4,804,803
	11,287,473			10,835,008			11,561,692			11,387,146
FHLB advances	2,370,000			2,225,000			2,540,000			2,330,000
Advance payments by borrowers for taxes and insurance	32,632			56,631			21,165			57,417
Federal and state income tax assets, net							7,388			—
Accrued expenses and other liabilities	89,953			131,253			74,792			94,253
	13,780,058			13,247,892			14,205,037			13,868,816
Stockholders’ equity
Common stock, $1.00 par value, 300,000,000 shares authorized; 135,343,437 and 134,957,511 shares issued; 83,534,098 and 87,193,362 shares outstanding	135,344			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 outstanding							135,496			135,343
Additional paid-in capital	1,665,421			1,660,885			1,668,666			1,666,609
Accumulated other comprehensive income (loss), net of taxes	8,137			5,015			2,891			8,294
Treasury stock, at cost; 51,809,339 and 47,764,149 shares	(975,001		)	(838,060		)
Treasury stock, at cost; 54,372,698 and 52,632,506 shares							(1,051,239		)	(1,002,309		)
Retained earnings	1,152,362			1,042,890			1,227,275			1,188,971
	1,986,263			2,005,688			1,983,089			1,996,908
	$	15,766,321		$	15,253,580		$	16,188,126		$	15,865,724

SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended June 30,					Nine Months Ended June 30,						Three Months Ended December 31,
	2018		2017			2018			2017			2018			2017
	(In thousands, except share data)					(In thousands, except share data)						(In thousands, except share data)
INTEREST INCOME
Loans receivable	$	131,541	$	117,457		$	382,581		$	348,326		$	137,065		$	124,511
Mortgage-backed securities	18,022		15,992			52,588			45,007			19,192			16,899
Investment securities and cash equivalents	5,509		4,267			14,762			13,345			6,365			4,370
	155,072		137,716			449,931			406,678			162,622			145,780
INTEREST EXPENSE
Customer accounts	18,887		12,764			49,939			38,173			26,579			14,638
FHLB advances	16,333		16,337			47,104			49,011			16,891			15,407
	35,220		29,101			97,043			87,184			43,470			30,045
Net interest income	119,852		108,615			352,888			319,494			119,152			115,735
Provision (release) for loan losses	1,000		—			50			(1,600		)	(500		)	—
Net interest income after provision (release) for loan losses	118,852		108,615			352,838			321,094			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 income	1,094		889			2,909			3,310			970			1,035
Deposit fee income	6,411		5,714			19,500			15,803			6,243			6,686
Other income	4,946		7,319			17,974			15,873			11,805			7,624
	12,451		13,922			31,833			35,954			19,009			6,795

OTHER EXPENSE
Compensation and benefits	31,223		28,947			92,467			84,774			33,883			29,619
Occupancy	9,095		8,829			26,779			26,370			9,268			8,671
FDIC insurance premiums	2,950		2,842			8,622			8,591			2,862			2,820
Product delivery	4,356		3,246			11,977			10,096			4,021			3,956
Information technology	10,118		6,617			26,828			19,754			9,040			7,929
Other expense	9,235		6,581			28,032			19,285			12,598			8,946
	66,977		57,062			194,705			168,870			71,672			61,941
Gain (loss) on real estate owned, net	168		(124		)	(64		)	1,069			320			46
Income before income taxes	64,494		65,351			189,902			189,247			67,309			60,635
Income tax expense	13,100		21,239			37,567			61,819			14,367			8,965
NET INCOME	$	51,394	$	44,112		$	152,335		$	127,428		$	52,942		$	51,670

PER SHARE DATA
Basic earnings per share	$	0.61	$	0.49		$	1.78		$	1.43		$	0.65		$	0.59
Diluted earnings per share	0.61		0.49			1.78			1.42			0.65			0.59
Dividends paid on common stock per share	0.17		0.15			0.49			0.69			0.18			0.15
Basic weighted average number of shares outstanding	84,168,992		89,199,823			85,589,588			89,297,471			81,791,852			86,938,095
Diluted weighted average number of shares outstanding	84,252,659		89,497,264			85,698,888			89,653,955			81,831,478			87,082,499

SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


	Three Months Ended June 30,						Nine Months Ended June 30,						Three Months Ended December 31,
	2018			2017			2018			2017			2018			2017
	(In thousands)						(In thousands)						(In thousands)
Net income	$	51,394		$	44,112		$	152,335		$	127,428		$	52,942		$	51,670

Other comprehensive income (loss) net of tax:
Net unrealized gain (loss) on available-for-sale investment securities	(4,851		)	3,171			(18,282		)	(8,224		)	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)	1,104			(1,165		)	5,506			2,667			(799		)	722
	(3,747		)	2,006			(12,776		)	(4,589		)	2,707			(1,242		)

Net unrealized gain (loss) on cash flow hedges of borrowings	3,865			(2,856		)	20,887			28,810			(10,499		)	6,690
Related tax benefit (expense)	(879		)	1,049			(4,989		)	(10,587		)	2,389			(2,459		)
	2,986			(1,807		)	15,898			18,223			(8,110		)	4,231

Other comprehensive income (loss) net of tax	(761		)	199			3,122			13,634			(5,403		)	2,989
Comprehensive income	$	50,633		$	44,311		$	155,457		$	141,062		$	47,539		$	54,659

SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(UNAUDITED)


(in thousands)	Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total			Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balance at October 1, 2017	$	134,958	$	1,660,885		$	1,042,890		$	5,015		$	(838,060	)	$	2,005,688
Adjustment pursuant to adoption of ASU 2018-02	—		—			(1,772		)	1,772			—			—
Balance at October 1, 2018																		$	135,343	$	1,666,609		$	1,188,971		$	8,294		$	(1,002,309	)	$	1,996,908
Net income	—		—			152,335			—			—			152,335			—		—			52,942			—			—			52,942
Other comprehensive income (loss)	—		—			—			1,350			—			1,350			—		—			—			(5,403		)	—			(5,403		)
Dividends on common stock	—		—			(41,091		)	—			—			(41,091		)	—		—			(14,638		)	—			—			(14,638		)
Proceeds from exercise of common stock options	60		1,228			—			—			—			1,288
Restricted stock expense	215		3,419			—			—			—			3,634
Proceeds from stock-based awards																		17		442			—			—			—			459
Stock-based compensation expense																		97		1,654			—			—			—			1,751
Exercise of stock warrants	111		(111		)										—			39		(39		)										—
Treasury stock acquired	—		—			—			—			(136,941		)	(136,941		)	—		—			—			—			(48,930		)	(48,930		)
Balance at June 30, 2018	$	135,344	$	1,665,421		$	1,152,362		$	8,137		$	(975,001	)	$	1,986,263
Balance at December 31, 2018																		$	135,496	$	1,668,666		$	1,227,275		$	2,891		$	(1,051,239	)	$	1,983,089

(in thousands)	Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total			Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total
Balance at October 1, 2016	$	134,308	$	1,648,388		$	943,877		$	(11,156	)	$	(739,686	)	$	1,975,731
Balance at October 1, 2017																		$	134,958	$	1,660,885		$	1,042,890		$	5,015		$	(838,060	)	$	2,005,688
Net income	—		—			127,428			—			—			127,428			—		—			51,670			—			—			51,670
Other comprehensive income (loss)	—		—			—			13,634			—			13,634			—		—			—			2,989			—			2,989
Dividends on common stock	—		—			(61,341		)	—			—			(61,341		)	—		—			(13,043		)	—			—			(13,043		)
Proceeds from exercise of common stock options	309		6,769			—			—			—			7,078
Restricted stock expense	105		5,021			—			—			—			5,126
Proceeds from stock-based awards																		14		272			—			—			—			286
Stock-based compensation expense																		194		818			—			—			—			1,012
Exercise of stock warrants	225		(225		)	—			—			—			—			109		(109		)	—			—			—			—
Treasury stock acquired	—		—			—			—			(46,470		)	(46,470		)	—		—			—			—			(38,984		)	(38,984		)
Balance at June 30, 2017	$	134,947	$	1,659,953		$	1,009,964		$	2,478		$	(786,156	)	$	2,021,186
Balance at December 31, 2017																		$	135,275	$	1,661,866		$	1,081,517		$	8,004		$	(877,044	)	$	2,009,618

SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended June 30,						Three Months Ended December 31,
	2018			2017			2018			2017
	(In thousands)						(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	152,335		$	127,428		$	52,942		$	51,670
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and accretion expense, net	38,980			29,602			7,388			15,273
Cash received from (paid to) FDIC under loss share agreements, net	1,595			813
Stock based compensation expense	3,634			5,126
Stock-based compensation expense							1,751			1,012
Provision (release) for loan losses	50			(1,600		)	(500		)	—
Loss (gain) on sale of investment securities	—			(968		)	9			—
Decrease (increase) in accrued interest receivable	(2,027		)	(1,257		)	(912		)	(503		)
Decrease (increase) in federal and state income tax receivable	(4,293		)	16,047			1,804			—
Decrease (increase) in cash surrender value of bank owned life insurance	(4,490		)	(4,907		)	(1,497		)	(1,571		)
Gain on bank owned life insurance	(2,416		)	(4,983		)	—			(2,416		)
Net realized (gain) loss on sales of premises, equipment, and real estate owned	(1,333		)	(1,691		)	(7,054		)	(241		)
Decrease (increase) in other assets	(878		)	6,618			16,816			(7,715		)
Increase (decrease) in accrued expenses and other liabilities	(40,862		)	(47,859		)	(10,482		)	2,595
Net cash provided by (used in) operating activities	140,295			122,369			60,265			58,104
CASH FLOWS FROM INVESTING ACTIVITIES
Origination of loans and principal repayments, net	(308,167		)	(668,413		)	(222,257		)	(80,089		)
Loans purchased	(143,605		)	(72,856		)	—			(143,605		)
FHLB & FRB stock purchased	(408,800		)	(93,009		)	(164,200		)	(123,600		)
FHLB & FRB stock redeemed	403,000			85,224			155,800			116,000
Available-for-sale securities purchased	(166,696		)	—			(172,076		)	(40,884		)
Principal payments and maturities of available-for-sale securities	156,240			290,243			38,118			58,261
Proceeds from sales of available-for-sale securities	—			350,890			491			—
Held-to-maturity securities purchased	(170,836		)	(415,729		)	—			(170,836		)
Principal payments and maturities of held-to-maturity securities	143,837			176,333			37,736			50,653
Proceeds from sales of real estate owned	11,960			13,780			3,915			3,440
Proceeds from settlement of bank owned life insurance	3,484			6,913			—			3,484
Cash paid for acquisitions	(2,211		)	—
Proceeds from sales of premises and equipment	1			3,956			10,233			1
Premises and equipment purchased and REO improvements	(22,604		)	(9,541		)	(18,562		)	(6,485		)
Net cash provided by (used in) investing activities	(504,397		)	(332,209		)	(330,802		)	(333,660		)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in customer accounts	452,694			33,654			174,623			166,647
Proceeds from borrowings	10,220,000			2,325,000			4,105,000			3,090,000
Repayments of borrowings	(10,075,000		)	(2,130,000		)	(3,895,000		)	(2,900,000		)
Proceeds from exercise of common stock options and related tax benefit	1,288			7,078
Proceeds from stock-based awards							459			286
Dividends paid on common stock	(41,091		)	(61,341		)	(14,638		)	(13,043		)
Treasury stock purchased	(136,941		)	(46,470		)	(48,930		)	(38,984		)
Increase (decrease) in borrower advances related to taxes and insurance, net	(23,999		)	(9,197		)	(36,252		)	(32,707		)
Net cash provided by (used in) financing activities	396,951			118,724			285,262			272,199
Increase (decrease) in cash and cash equivalents	32,849			(91,116		)	14,725			(3,357		)
Cash and cash equivalents at beginning of period	313,070			450,368
Cash and cash equivalents at end of period	$	345,919		$	359,252
Cash, cash equivalents and restricted cash at beginning of period							268,650			313,070
Cash, cash equivalents and restricted cash at end of period							$	283,375		$	309,713

(CONTINUED)

SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Nine Months Ended June 30,				Three Months Ended December 31,
	2018		2017		2018		2017
	(In thousands)				(In thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Non-cash investing activities
Real estate acquired through foreclosure	$	1,517	$	2,323	$	116	$	773
Non-cash financing activities
Stock issued upon exercise of warrants	3,836		7,546		1,082		3,761
Cash paid during the period for
Interest	95,394		82,919		44,177		29,986
Income taxes	34,160		33,228		—		5,225

SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

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 estate~~consumer loans. As used throughout this document, the terms "Washington Federal" or the "Company" refer to Washington Federal, Inc. and its consolidated subsidiaries and the term "Bank" refers to the operating subsidiary Washington Federal, National Association.

Basis of Presentation - The Company has prepared the consolidated unaudited interim financial statements included in this report. All intercompany transactions and accounts have been eliminated in consolidation. The preparation of financial statements, in conformity with accounting principles generally accepted in the United States of America (“GAAP”), requires management to make estimates and assumptions that affect amounts reported in the financial statements. Actual results could differ from these estimates. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation are reflected in the interim financial statements. Certain amounts in the financial statements from prior periods have been reclassified to conform to the current financial statement presentation.

The information included in this Form 10-Q should be read in conjunction with the financial statements and related notes in the Company's ~~2017~~2018 Annual Report on Form 10-K (“~~2017~~2018 Annual Financial Statements”). Interim results are not necessarily indicative of results for a full year.

During the nine months ended June 30, 2018, 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 ~~2017~~2018 Annual Financial Statements. There have not been any material changes in the Company's significant accounting policies compared to those contained in its ~~2017~~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 ~~$2,161,343,000~~$2,116,196,000 and ~~$1,992,905,000~~$2,180,162,000 at ~~June 30,~~December 31, 2018 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”) 2018-15, ~~ASU")~~ 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 ~~does~~early adopted this ASU beginning October 1, 2018. The adoption did not ~~anticipate that this guidance will have~~result 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

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15, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. ~~The~~Effective October 1, 2018, the Company ~~does~~early 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. ~~The~~Effective October 1, 2018, the Company ~~does~~adopted this ASU and it did 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 have~~present restricted cash as a ~~material impact~~separate 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 evaluating~~previously classified proceeds from the ~~guidance~~settlement 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 its~~the consolidated financial statements.

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

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

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

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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 income~~a 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~~

On May 25, 2018, the Company paid a regular dividend on common stock of $0.17 per share, which represented the 141st consecutive quarterly cash dividend. Dividends per share were $0.17 and $0.15 for the quarters ended June 30, 2018 and 2017, respectively. On July 23, 2018, the Company declared a regular dividend on common stock of $0.18 per share, which represents its 142nd consecutive quarterly cash dividend. This dividend will be paid on August 24, 2018 to common shareholders of record on August 10, 2018.

For the three months ended June 30, 2018, the Company repurchased 1,224,384 shares at an average price of $32.64. During the three months ended June 30, 2018, 2,329 shares of common stock were issued to investors holding warrants previously issued as part of the 2008 Troubled Asset Relief Program ("TARP"). As of June 30, 2018, 107,617 of these warrants remain outstanding. Net of warrant cash repurchase activity, there are 2,855,765 remaining shares authorized to be repurchased under the current Board approved share repurchase program.

~~NOTE D – Loans Receivable~~

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

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

NOTE D – Loans Receivable

The following table is a summary of loans receivable.

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	June 30, 2018				September 30, 2017				December 31, 2018				September 30, 2018
	(In thousands)				(In thousands)				(In thousands)				(In thousands)
Gross loans by category
Single-family residential	$	5,745,598	45.1	%	$	5,711,004	46.8	%	$	5,844,963	44.9	%	$	5,798,966	45.1	%
Construction	1,885,034		14.8		1,597,996		13.1		1,841,674		14.1		1,890,668		14.7
Construction - custom	612,688		4.8		602,631		4.9		607,071		4.7		624,479		4.9
Land - acquisition & development	150,936		1.2		124,308		1.0		181,323		1.4		155,204		1.2
Land - consumer lot loans	103,118		0.8		104,405		0.9		100,563		0.8		102,036		0.8
Multi-family	1,346,534		10.6		1,303,148		10.7		1,405,172		10.8		1,385,125		10.8
Commercial real estate	1,435,418		11.3		1,434,610		11.8		1,526,887		11.7		1,452,168		11.3
Commercial & industrial	1,133,075		8.9		1,093,360		9.0		1,213,738		9.3		1,140,874		8.9
HELOC	136,766		1.1		144,850		1.2		136,856		1.1		130,852		1.0
Consumer	188,125		1.5		85,075		0.7		162,221		1.2		173,306		1.3
Total gross loans	12,737,292		100	%	12,201,387		100	%	13,020,468		100	%	12,853,678		100	%
Less:
Allowance for loan losses	128,666				123,073				131,165				129,257
Loans in process	1,230,132				1,149,934				1,138,308				1,195,506
Net deferred fees, costs and discounts	52,523				45,758				50,756				51,834
Total loan contra accounts	1,411,321				1,318,765				1,320,229				1,376,597
Net loans	$	11,325,971			$	10,882,622			$	11,700,239			$	11,477,081

The following table sets forth information regarding non-accrual loans.


	June 30, 2018					September 30, 2017					December 31, 2018					September 30, 2018
	(In thousands, except ratio data)										(In thousands, except ratio data)
Non-accrual loans:
Single-family residential	$	26,119		43.1	%	$	27,930		56.3	%	$	24,748		48.1	%	$	27,643		49.6	%
Construction	1,841			3.0		—			—		1,380			2.7		2,427			4.4
Construction - custom	—			—		91			0.2
Land - acquisition & development	1,757			2.9		296			0.6		438			0.9		920			1.7
Land - consumer lot loans	642			1.1		605			1.2		785			1.5		787			1.4
Multi-family	—			—		139			0.3
Commercial real estate	9,684			16.0		11,815			23.8		9,478			18.4		8,971			16.1
Commercial & industrial	19,876			32.8		8,082			16.3		13,995			27.2		14,394			25.8
HELOC	637			1.1		531			1.1		599			1.2		523			0.9
Consumer	28			—		91			0.2		27			0.1		21			—
Total non-accrual loans	$	60,584		100	%	$	49,580		100	%	$	51,450		100	%	$	55,686		100	%
% of total net loans	0.53		%			0.46		%			0.44		%			0.49		%

The Company recognized interest income on non-accrual loans of approximately ~~$3,926,000~~$843,000 in the ~~nine~~three months ended ~~June 30,~~December 31, 2018. Had these loans been on accrual status and performed according to their original contract terms, the Company would have recognized interest income of approximately ~~$1,741,000~~$587,000 for the ~~nine~~three months ended ~~June 30,~~December 31, 2018. Recognized interest income for the ~~nine~~three months ended ~~June 30,~~December 31, 2018 was higher than what otherwise would have been collected in the period due to the collection of past due amounts. Interest cash flows collected on non-accrual loans vary from period to period as those loans are brought current or are paid off.

The following tables provide details regarding delinquent loans.

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~~The following tables provide details regarding delinquent loans.~~


June 30, 2018	Loans Receivable		Days Delinquent Based on $ Amount of Loans										% based on $
December 31, 2018													% based on $		Loans Receivable		Days Delinquent Based on $ Amount of Loans										% based on $
Type of Loan	Net of Loans In Process		Current		30		60		90		Total Delinquent		% based on $		Net of Loans In Process		Current		30		60		90		Total Delinquent		% based on $
	(In thousands, except ratio data)												% based on $		(In thousands, except ratio data)
Single-family residential	$	5,744,620	$	5,714,962	$	7,201	$	4,521	$	17,936	$	29,658	0.52	%	$	5,844,383	$	5,817,233	$	5,857	$	5,019	$	16,274	$	27,150	0.46	%
Construction	1,012,239		1,009,782		—		616		1,841		2,457		0.24		1,047,229		1,045,849		—		—		1,380		1,380		0.13
Construction - custom	285,858		285,687		171		—		—		171		0.06		299,622		299,622		—		—		—		—		—
Land - acquisition & development	121,508		119,593		—		270		1,645		1,915		1.58		145,635		145,443		—		—		192		192		0.13
Land - consumer lot loans	103,040		102,303		128		301		308		737		0.72		100,440		99,957		—		—		483		483		0.48
Multi-family	1,346,512		1,346,512		—		—		—		—		—		1,405,149		1,403,524		974		651		—		1,625		0.12
Commercial real estate	1,435,417		1,433,030		684		—		1,703		2,387		0.17		1,526,887		1,520,083		1,757		2,942		2,105		6,804		0.45
Commercial & industrial	1,133,075		1,126,480		—		—		6,595		6,595		0.58		1,213,738		1,203,436		283		234		9,785		10,302		0.85
HELOC	136,766		135,406		863		146		351		1,360		0.99		136,856		135,488		411		569		388		1,368		1.00
Consumer	188,125		187,773		125		127		100		352		0.19		162,221		161,946		121		125		29		275		0.17
Total Loans	$	11,507,160	$	11,461,528	$	9,172	$	5,981	$	30,479	$	45,632	0.40	%	$	11,882,160	$	11,832,581	$	9,403	$	9,540	$	30,636	$	49,579	0.42	%
Delinquency %			99.60%		0.08%		0.05%		0.26%		0.40%						99.58%		0.08%		0.08%		0.26%		0.42%


September 30, 2017	Loans Receivable		Days Delinquent Based on $ Amount of Loans										% based on $
September 30, 2018													% based on $		Loans Receivable		Days Delinquent Based on $ Amount of Loans										% based on $
Type of Loan	Net of Loans In Process		Current		30		60		90		Total Delinquent		% based on $		Net of Loans In Process		Current		30		60		90		Total Delinquent		% based on $
	(In thousands, except ratio data)												% based on $		(In thousands, except ratio data)
Single-family residential	$	5,709,690	$	5,671,933	$	10,925	$	4,810	$	22,022	$	37,757	0.66	%	$	5,798,353	$	5,768,253	$	7,983	$	3,562	$	18,555	$	30,100	0.52	%
Construction	793,959		793,959		—		—		—		—		—		1,062,855		1,060,428		—		—		2,427		2,427		0.23
Construction - custom	277,599		277,508		—		—		91		91		0.03		289,192		289,192		—		—		—		—		—
Land - acquisition & development	104,856		104,526		—		—		330		330		0.31		123,560		122,620		—		270		670		940		0.76
Land - consumer lot loans	104,335		103,389		112		680		154		946		0.91		101,908		101,294		144		117		353		614		0.60
Multi-family	1,303,119		1,302,720		5		255		139		399		0.03		1,385,103		1,385,103		—		—		—		—		—
Commercial real estate	1,434,610		1,432,052		507		—		2,051		2,558		0.18		1,452,169		1,448,946		316		1,767		1,140		3,223		0.22
Commercial & industrial	1,093,360		1,092,735		—		51		574		625		0.06		1,140,874		1,130,836		—		—		10,038		10,038		0.88
HELOC	144,850		143,974		221		342		313		876		0.60		130,852		129,510		567		469		306		1,342		1.03
Consumer	85,075		84,644		245		107		79		431		0.51		173,306		172,777		172		328		29		529		0.31
Total Loans	$	11,051,453	$	11,007,440	$	12,015	$	6,245	$	25,753	$	44,013	0.40	%	$	11,658,172	$	11,608,959	$	9,182	$	6,513	$	33,518	$	49,213	0.42	%
Delinquency %			99.60%		0.11%		0.06%		0.23%		0.40%						99.58%		0.08%		0.06%		0.29%		0.42%

The percentage of total delinquent loans was ~~0.40%~~0.42% as of ~~June 30,~~December 31, 2018 and ~~0.40%~~0.42% as of September 30, ~~2017.~~2018. There are no loans greater than 90 days delinquent and still accruing interest as of either date.

1314

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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 June 30,
2018 2017
Pre-Modification Post-Modification Pre-Modification Post-Modification
Outstanding Outstanding Outstanding Outstanding
Number of Recorded Recorded Number of Recorded Recorded
Contracts Investment Investment Contracts Investment Investment
($ in thousands) ($ in thousands)
Troubled Debt Restructurings:
Single-family residential 5
$ 714
$ 714
11
$ 1,836
$ 1,836
HELOC 1
75
75
—
—
—
6
$ 789
$ 789
11
$ 1,836
$ 1,836


	Nine Months Ended June 30,										Three Months Ended December 31,
	2018					2017					2018					2017
		Pre-Modification		Post-Modification			Pre-Modification		Post-Modification			Pre-Modification		Post-Modification			Pre-Modification		Post-Modification
		Outstanding		Outstanding			Outstanding		Outstanding			Outstanding		Outstanding			Outstanding		Outstanding
	Number of	Recorded		Recorded		Number of	Recorded		Recorded		Number of	Recorded		Recorded		Number of	Recorded		Recorded
	Contracts	Investment		Investment		Contracts	Investment		Investment		Contracts	Investment		Investment		Contracts	Investment		Investment
		($ in thousands)					($ in thousands)					($ in thousands)					($ in thousands)
Troubled Debt Restructurings:
Single-family residential	25	$	4,909	$	4,909	31	$	5,682	$	5,682	1	$	283	$	283	8	$	2,012	$	2,012
Land - consumer lot loans	—	—		—		1	204		204
Commercial & Industrial	3	7,256		7,256		—	—		—		—	—		—		3	7,256		7,256
HELOC	1	75		75		1	228		228
	29	$	12,240	$	12,240	33	$	6,114	$	6,114	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 June 30,						Three Months Ended December 31,
	2018			2017			2018			2017
	Number of	Recorded		Number of	Recorded		Number of	Recorded		Number of	Recorded
	Contracts	Investment		Contracts	Investment		Contracts	Investment		Contracts	Investment
	($ in thousands)			($ in thousands)			($ in thousands)			($ in thousands)
Trouble Debt Restructurings That Subsequently Defaulted:
Single-family residential	—	$	—	3	$	401	1	$	543	1	$	44
	—	$	—	3	$	401	1	$	543	1	$	44

~~Table of Contents~~

~~WASHINGTON FEDERAL, INC. AND SUBSIDIARIES~~

~~NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

Nine Months Ended June 30,
2018 2017
Number of Recorded Number of Recorded
Contracts Investment Contracts Investment
($ in thousands) ($ in thousands)
Troubled Debt Restructurings That Subsequently Defaulted:
Single-family residential 2
$ 206
16
$ 3,586
Commercial real estate —
—
2
267
2
$ 206
18
$ 3,853

Most loans restructured in TDRs are accruing and performing loans where the borrower has proactively approached the Company about modification due to temporary financial difficulties. As of ~~June 30,~~December 31, 2018, ~~96.7%~~96.0% of the Company's ~~$171,603,000~~$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 ~~June 30,~~December 31, 2018, single-family residential loans comprised 89.4% of TDRs.

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

In May 2018, the Bank entered into an agreement with the FDIC to early terminate its remaining FDIC loss share agreements, which relate to the Horizon Bank and Home Valley Bank acquisitions. The Bank paid $39,906,000 to settle the FDIC clawback liability and this amount is consistent with the liability on the balance sheet as of March 31, 2018 so no additional gain or loss was recorded in the three months ended June 30, 2018. Under the termination agreement, all rights and obligations of the Bank and the FDIC have been resolved and completed. As such, future recoveries, gains, losses and expenses related to the previously covered assets will now be recognized entirely by the Bank and the FDIC will no longer share in such gains or losses.

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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 June 30, 2018	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	$	34,144	$	(299	)	$	283	$	273		$	34,401	$	33,033	$	(25	)	$	230	$	(1,754	)	$	31,484
Construction	27,389		—			—		2,744			30,133		31,317		—			—		146			31,463
Construction - custom	2,081		—			—		(67		)	2,014		1,842		—			—		84			1,926
Land - acquisition & development	7,622		(12		)	2,699		(2,609		)	7,700		7,978		—			1,782		(604		)	9,156
Land - consumer lot loans	2,853		(1		)	35		20			2,907		2,164		(72		)	265		(213		)	2,144
Multi-family	7,982		—			—		109			8,091		8,329		—			—		(445		)	7,884
Commercial real estate	11,588		—			91		(100		)	11,579		11,852		(339		)	525		673			12,711
Commercial & industrial	29,330		(3,317		)	433		1,069			27,515		28,702		(179		)	33		1,723			30,279
HELOC	802		—			—		9			811		781		(886		)	1		1,168			1,064
Consumer	3,785		(45		)	223		(448		)	3,515		3,259		(140		)	213		(278		)	3,054
	$	127,576	$	(3,674	)	$	3,764	$	1,000		$	128,666	$	129,257	$	(1,641	)	$	3,049	$	500		$	131,165


Three Months Ended June 30, 2017	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	$	37,164	$	(267	)	$	81	$	1,133		$	38,111	$	36,892	$	(461	)	$	121	$	(624	)	$	35,928
Construction	25,061		—			—		(3,195		)	21,866		24,556		—			—		658			25,214
Construction - custom	1,176		—			—		714			1,890		1,944		(50		)	—		158			2,052
Land - acquisition & development	6,669		—			863		(315		)	7,217		6,829		—			3,372		(2,846		)	7,355
Land - consumer lot loans	2,513		—			118		(83		)	2,548		2,649		(47		)	—		304			2,906
Multi-family	7,929		—			—		(17		)	7,912		7,862		—			—		42			7,904
Commercial real estate	10,772		—			164		411			11,347		11,818		—			—		(193		)	11,625
Commercial & industrial	28,365		—			154		653			29,172		28,524		(116		)	55		805			29,268
HELOC	826		—			1		50			877		855		—			—		(47		)	808
Consumer	1,447		(144		)	282		(296		)	1,289		1,144		(78		)	286		2,743			4,095
	$	121,922	$	(411	)	$	1,663	$	(945	)	$	122,229	$	123,073	$	(752	)	$	3,834	$	1,000		$	127,155

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

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

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

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Nine Months Ended June 30, 2018
Beginning
Allowance
Charge-offs Recoveries
Provision &
Transfers

Ending
Allowance
(In thousands)
Single-family residential $ 36,892
$ (1,049 ) $ 615
$ (2,057 ) $ 34,401
Construction 24,556
—
—
5,577
30,133
Construction - custom 1,944
(50 ) —
120
2,014
Land - acquisition & development 6,829
(12 ) 7,278
(6,395 ) 7,700
Land - consumer lot loans 2,649
(67 ) 35
290
2,907
Multi-family 7,862
—
—
229
8,091
Commercial real estate 11,818
(36 ) 92
(295 ) 11,579
Commercial & industrial 28,524
(3,433 ) 603
1,821
27,515
HELOC 855
(1 ) —
(43 ) 811
Consumer 1,144
(217 ) 785
1,803
3,515
$ 123,073
$ (4,865 ) $ 9,408
$ 1,050
$ 128,666

Nine Months Ended June 30, 2017
Beginning
Allowance
Charge-offs Recoveries
Provision &
Transfers

Ending
Allowance
(In thousands)
Single-family residential $ 37,796
$ (763 ) $ 455
$ 623
$ 38,111
Construction 19,838
—
—
2,028
21,866
Construction - custom 1,080
(3 ) —
813
1,890
Land - acquisition & development 6,023
(63 ) 9,092
(7,835 ) 7,217
Land - consumer lot loans 2,535
(17 ) 368
(338 ) 2,548
Multi-family 6,925
—
—
987
7,912
Commercial real estate 8,588
(11 ) 1,684
1,086
11,347
Commercial & industrial 28,008
(163 ) 1,096
231
29,172
HELOC 813
(90 ) 2
152
877
Consumer 1,888
(798 ) 975
(776 ) 1,289
$ 113,494
$ (1,908 ) $ 13,672
$ (3,029 ) $ 122,229

The Company recorded a provision for loan losses of $1,000,000 for the three months ended June 30, 2018, compared to no provision for loan losses for the three months ended June 30, 2017. A provision for loan losses of $50,000 and a release of allowance for loan losses of $1,600,000 was recorded during the nine months ended June 30, 2018 and June 30, 2017, respectively. 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 $90,000 for the three months ended June 30, 2018, compared to net recoveries of $1,252,000 during the three months ended June 30, 2017. Recoveries, net of charge-offs, totaled $4,543,000 for the nine months ended June 30, 2018, compared to net recoveries of $11,764,000 during the nine months ended June 30, 2017.

Non-performing assets were $71,859,000, or 0.46%, of total assets at June 30, 2018, compared to $70,238,000, or 0.46%, of total assets at September 30, 2017. Non-accrual loans were $60,584,000 at June 30, 2018, compared to $49,580,000 at September 30, 2017. Delinquencies, as a percent of total loans, were 0.40% at June 30, 2018, compared to 0.40% at September 30, 2017.

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

Management believes the allowance for loan losses plus the reserve for unfunded commitments, totaling ~~$135,416,000,~~$137,415,000, or 1.06% of gross loans as of ~~June 30,~~December 31, 2018, is sufficient to absorb estimated losses inherent in the portfolio of loans and unfunded commitments.

The following tables show loans collectively and individually evaluated for impairment and the related allocation of general and specific reserves.



December 31, 2018	Loans Collectively Evaluated for Impairment						Loans Individually Evaluated for Impairment
	Allowance Allocation		Recorded Investment of Loans		Ratio		Allowance Allocation		Recorded Investment of Loans		Ratio
	(In thousands, except ratio data)						(In thousands, except ratio data)
Single-family residential	$	31,484	$	5,833,667	0.5	%	$	—	$	16,259	—	%
Construction	31,463		1,045,849		3.0		—		1,380		—
Construction - custom	1,926		299,622		0.6		—		—		—
Land - acquisition & development	9,147		145,197		6.3		9		438		2.1
Land - consumer lot loans	2,144		95,628		2.2		—		303		—
Multi-family	7,880		1,404,714		0.6		4		435		0.9
Commercial real estate	12,569		1,512,064		0.8		142		14,823		1.0
Commercial & industrial	29,934		1,199,565		2.5		345		14,206		2.4
HELOC	1,064		135,369		0.8		—		519		—
Consumer	3,054		161,958		1.9		—		162		—
	$	130,665	$	11,833,633	1.1	%	$	500	$	48,525	1.0	%



September 30, 2018	Loans Collectively Evaluated for Impairment						Loans Individually Evaluated for Impairment
	Allowance Allocation		Recorded Investment of Loans		Ratio		Allowance Allocation		Recorded Investment of Loans		Ratio
	(In thousands, except ratio data)						(In thousands, except ratio data)
Single-family residential	$	33,033	$	5,782,870	0.6	%	$	—	$	21,345	—	%
Construction	31,317		1,060,428		3.0		—		2,427		—
Construction - custom	1,842		289,192		0.6		—		—		—
Land - acquisition & development	7,969		122,639		6.5		9		920		1.0
Land - consumer lot loans	2,164		96,583		2.2		—		507		—
Multi-family	8,325		1,384,655		0.6		4		448		1.0
Commercial real estate	11,702		1,432,791		0.8		150		19,378		0.8
Commercial & industrial	28,348		1,126,438		2.5		354		14,437		2.5
HELOC	781		128,715		0.6		—		1,162		—
Consumer	3,259		173,181		1.9		—		56		—
	$	128,740	$	11,597,492	1.1	%	$	517	$	60,680	0.9	%

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

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

~~The following tables show loans collectively and individually evaluated for impairment and the related allocation of general and specific reserves.~~

June 30, 2018 Loans Collectively Evaluated for Impairment Loans Individually Evaluated for Impairment
Allowance Allocation Recorded Investment of Loans Ratio Allowance Allocation Recorded Investment of Loans Ratio
(In thousands, except ratio data) (In thousands, except ratio data)
Single-family residential $ 34,401
$ 5,726,737
0.6 % $ —
$ 24,139
— %
Construction 30,133
1,007,676
3.0
—
4,563
—
Construction - custom 2,014
285,858
0.7
—
—
—
Land - acquisition & development 7,700
118,323
6.5
—
3,184
—
Land - consumer lot loans 2,907
97,310
3.0
—
833
—
Multi-family 8,086
1,343,468
0.6
5
3,045
0.2
Commercial real estate 11,502
1,388,029
0.8
77
31,805
0.2
Commercial & industrial 27,515
1,087,664
2.5
—
45,400
—
HELOC 811
134,522
0.6
—
562
—
Consumer 3,515
188,004
1.9
—
26
—
$ 128,584
$ 11,377,591
1.1 % $ 82
$ 113,557
0.1 %

September 30, 2017 Loans Collectively Evaluated for Impairment Loans Individually Evaluated for Impairment
Allowance Allocation Recorded Investment of Loans Ratio Allowance Allocation Recorded Investment of Loans Ratio
(In thousands, except ratio data) (In thousands, except ratio data)
Single-family residential $ 36,892
$ 5,713,576
0.7 % $ —
$ 5,552
— %
Construction 24,556
793,958
3.1
—
—
—
Construction - custom 1,944
277,495
0.7
—
105
—
Land - acquisition & development 6,828
104,767
6.5
1
89
1.0
Land - consumer lot loans 2,649
96,337
2.8
—
171
—
Multi-family 7,857
1,302,625
0.6
5
493
1.0
Commercial real estate 11,698
1,391,668
0.8
120
21,765
0.6
Commercial & industrial 28,524
1,093,210
2.6
—
81
—
HELOC 855
141,689
0.6
—
215
—
Consumer 1,144
84,887
1.4
—
82
—
$ 122,947
$ 11,000,212
1.1 % $ 126
$ 28,553
0.4 %

As of June 30, 2018, $128,584,000 of the allowance was calculated under the Company's general allowance methodology and the remaining $82,000 was specific reserves on loans deemed to be individually impaired. As of September 30, 2017, $122,947,000 of the allowance was calculated under the Company's general allowance methodology and the remaining $126,000 was specific reserves on loans deemed to be individually impaired.

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

~~Table of Contents~~

~~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 management attention is required to deter further deterioration in the credit. Assets in this category constitute some undue and unwarranted credit risk but not to the point of justifying a risk rating of substandard. The credit risk may be relatively minor yet constitutes an unwarranted risk in light of the circumstances surrounding a specific asset.

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

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

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

1918

Table of Contents

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.


June 30, 2018	Internally Assigned Grade
December 31, 2018																		Internally Assigned Grade
	Pass			Special mention			Substandard			Doubtful			Loss			Total Gross Loans		Pass			Special mention			Substandard			Doubtful			Loss			Total Gross Loans
	(In thousands, except ratio data)																	(In thousands, except ratio data)
Loan type
Single-family residential	$	5,713,075		$	—		$	32,523		$	—		$	—		$	5,745,598	$	5,815,029		$	—		$	29,934		$	—		$	—		$	5,844,963
Construction	1,880,415			55			4,564			—			—			1,885,034		1,832,326			7,968			1,380			—			—			1,841,674
Construction - custom	612,688			—			—			—			—			612,688		607,071			—			—			—			—			607,071
Land - acquisition & development	147,864			—			3,072			—			—			150,936		179,602			—			1,721			—			—			181,323
Land - consumer lot loans	102,476			—			642			—			—			103,118		99,778			—			785			—			—			100,563
Multi-family	1,343,950			—			2,584			—			—			1,346,534		1,397,920			3,254			3,998			—			—			1,405,172
Commercial real estate	1,402,581			4,900			27,937			—			—			1,435,418		1,484,559			19,810			22,518			—			—			1,526,887
Commercial & industrial	1,084,175			9,582			39,318			—			—			1,133,075		1,169,981			9,790			33,967			—			—			1,213,738
HELOC	136,122			—			644			—			—			136,766		136,256			—			600			—			—			136,856
Consumer	188,093			—			32			—			—			188,125		162,191			—			30			—			—			162,221
Total gross loans	$	12,611,439		$	14,537		$	111,316		$	—		$	—		$	12,737,292	$	12,884,713		$	40,822		$	94,933		$	—		$	—		$	13,020,468

Total grade as a % of total gross loans	99.0		%	0.1		%	0.9		%	—		%	—		%			99.0		%	0.3		%	0.7		%	—		%	—		%


September 30, 2017	Internally Assigned Grade
September 30, 2018																		Internally Assigned Grade
	Pass			Special mention			Substandard			Doubtful			Loss			Total Gross Loans		Pass			Special mention			Substandard			Doubtful			Loss			Total Gross Loans
	(In thousands, except ratio data)																	(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
Construction	1,594,926			—			3,070			—			—			1,597,996		1,886,304			1,937			2,427			—			—			1,890,668
Construction - custom	602,540			—			91			—			—			602,631		624,479			—			—			—			—			624,479
Land - acquisition & development	123,028			207			1,073			—			—			124,308		152,984			—			2,220			—			—			155,204
Land - consumer lot loans	103,787			—			618			—			—			104,405		101,249			—			787			—			—			102,036
Multi-family	1,295,261			5,795			2,092			—			—			1,303,148		1,378,803			1,633			4,689			—			—			1,385,125
Commercial real estate	1,391,996			5,944			36,670			—			—			1,434,610		1,421,602			7,114			23,452			—			—			1,452,168
Commercial & industrial	1,054,972			14,814			23,574			—			—			1,093,360		1,093,405			16,513			30,956			—			—			1,140,874
HELOC	144,229			—			621			—			—			144,850		130,330			—			522			—			—			130,852
Consumer	84,984			—			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 loans	98.9		%	0.2		%	0.9		%	—		%	—		%			99.0		%	0.2		%	0.8		%	—		%	—		%

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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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


June 30, 2018	Performing Loans				Non-Performing Loans
December 31, 2018									Performing 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, except ratio data)								(In thousands, except ratio data)
Single-family residential	$	5,719,479	99.5	%	$	26,119	0.5	%	$	5,820,215		99.6	%	$	24,748	0.4	%
Construction	1,883,193		99.9		1,841		0.1		1,840,294			99.9		1,380		0.1
Construction - custom	612,688		100.0		—		—		607,071			100.0		—		—
Land - acquisition & development	149,179		98.8		1,757		1.2		180,885			99.8		438		0.2
Land - consumer lot loans	102,476		99.4		642		0.6		99,778			99.2		785		0.8
Multi-family	1,346,534		100.0		—		—		1,405,172			100.0		—		—
Commercial real estate	1,425,734		99.3		9,684		0.7		1,517,409			99.4		9,478		0.6
Commercial & industrial	1,113,199		98.2		19,876		1.8		1,199,743			98.8		13,995		1.2
HELOC	136,129		99.5		637		0.5		136,257			99.6		599		0.4
Consumer	188,097		100.0		28		—		162,194			100.0		27		—
	$	12,676,708	99.5	%	$	60,584	0.5	%	$	12,969,018	��	99.6	%	$	51,450	0.4	%


September 30, 2017	Performing Loans				Non-Performing Loans
September 30, 2018									Performing 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, except ratio data)								(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	%
Construction	1,597,996		100.0		—		—		1,888,241		99.9		2,427		0.1
Construction - custom	602,540		99.9		91		0.1		624,479		100.0		—		—
Land - acquisition & development	124,012		99.8		296		0.2		154,284		99.4		920		0.6
Land - consumer lot loans	103,800		99.4		605		0.6		101,249		99.2		787		0.8
Multi-family	1,303,009		99.9		139		0.1		1,385,125		100.0		—		—
Commercial real estate	1,422,795		99.2		11,815		0.8		1,443,197		99.4		8,971		0.6
Commercial & industrial	1,085,278		99.3		8,082		0.7		1,126,480		98.7		14,394		1.3
HELOC	144,319		99.6		531		0.4		130,329		99.6		523		0.4
Consumer	84,984		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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(UNAUDITED)

The following tables provide information on impaired loan balances and the related allowances by loan types.


June 30, 2018	Recorded Investment		Unpaid Principal Balance		Related Allowance			Average Recorded Investment (Year-To-Date)
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	$	22,114	$	23,310	$	—		$	21,944	$	15,438	$	16,633	$	—		$	17,155
Construction	4,843		4,933		—			2,928		1,630		1,750		—			2,164
Construction - custom	—		—		—			37
Land - acquisition & development	3,073		3,120		—			1,741		335		335		—			575
Land - consumer lot loans	455		490		—			337		181		281		—			246
Multi-family	2,606		2,606		—			1,403
Commercial real estate	26,818		31,372		—			22,338		9,945		15,035		—			9,685
Commercial & industrial	35,427		35,736		—			19,507		9,868		10,055		—			10,003
HELOC	562		655		—			486		519		612		—			465
Consumer	26		68		—			56		25		230		—			23
	95,924		102,290		—			70,777		37,941		44,931		—			40,316
Impaired loans with an allowance recorded:
Single-family residential	153,356		156,644		2,792			167,211		133,808		136,876		2,498			136,802
Land - acquisition & development	—		—		—			23		103		156		—			105
Land - consumer lot loans	5,136		5,502		—			6,832		4,601		4,930		9			4,759
Multi-family	461		461		5			477		435		435		4			442
Commercial real estate	7,162		7,975		77			11,492		5,552		6,625		142			5,903
Commercial & industrial	3,924		6,964		—			4,547		4,159		7,502		345			4,225
HELOC	1,491		1,575		—			1,500		968		978		—			972
Consumer	73		73		—			87		67		67		—			69
	171,603		179,194		2,874		(1)	192,169		149,693		157,569		2,998		(1)	153,277
Total impaired loans:
Single-family residential	175,470		179,954		2,792			189,155		149,246		153,509		2,498			153,957
Construction	4,843		4,933		—			2,928		1,630		1,750		—			2,164
Construction - custom	—		—		—			37
Land - acquisition & development	3,073		3,120		—			1,764		438		491		—			680
Land - consumer lot loans	5,591		5,992		—			7,169		4,782		5,211		9			5,005
Multi-family	3,067		3,067		5			1,880		435		435		4			442
Commercial real estate	33,980		39,347		77			33,830		15,497		21,660		142			15,588
Commercial & industrial	39,351		42,700		—			24,054		14,027		17,557		345			14,228
HELOC	2,053		2,230		—			1,986		1,487		1,590		—			1,437
Consumer	99		141		—			143		92		297		—			92
	$	267,527	$	281,484	$	2,874	(1)	$	262,946	$	187,634	$	202,500	$	2,998	(1)	$	193,593


(1)	Includes ~~$82,000~~$500,000 of specific reserves and ~~$2,792,000~~$2,498,000 included in the general reserves.

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(UNAUDITED)


September 30, 2017	Recorded Investment		Unpaid Principal Balance		Related Allowance			Average Recorded Investment (Year-To-Date)
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
Construction										2,698		2,818		—			1,349
Construction - custom	148		165		—			231		—		—		—			74
Land - acquisition & development	330		8,208		—			176		814		814		—			572
Land - consumer lot loans	208		330		—			431		311		336		—			260
Multi-family	139		3,231		—			748		—		—		—			70
Commercial real estate	12,890		22,487		—			11,466		9,425		14,035		—			11,158
Commercial & industrial	8,279		14,321		—			7,425		10,137		10,146		—			9,208
HELOC	490		1,212		—			487		410		1,170		—			450
Consumer	88		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 residential	181,941		186,167		4,030			204,723		139,796		143,099		2,871			161,729
Land - acquisition & development	90		90		1			576		107		157		—			39
Land - consumer lot loans	7,949		8,526		—			8,976		4,916		5,290		9			6,449
Multi-family	493		493		5			1,024		448		448		4			471
Commercial real estate	15,079		16,707		120			16,991		6,254		7,733		150			10,445
Commercial & industrial	—		—		—			297		4,291		7,506		354			4,495
HELOC	1,728		1,806		—			1,451		976		984		—			1,395
Consumer	97		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 residential	203,266		210,047		4,030			224,094		158,668		163,149		2,871			181,826
Construction										2,698		2,818		—			1,349
Construction - custom	148		165		—			231		—		—		—			74
Land - acquisition & development	420		8,298		1			752		921		971		—			611
Land - consumer lot loans	8,157		8,856		—			9,407		5,227		5,626		9			6,709
Multi-family	632		3,724		5			1,772		448		448		4			541
Commercial real estate	27,969		39,194		120			28,457		15,679		21,768		150			21,603
Commercial & industrial	8,279		14,321		—			7,722		14,428		17,652		354			13,703
HELOC	2,218		3,018		—			1,938		1,386		2,154		—			1,845
Consumer	185		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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(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 that 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.

The Company has established and documented the process for determining the fair values of its 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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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.


	June 30, 2018								December 31, 2018
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(In thousands)								(In thousands)
Financial Assets
Available-for-sale securities:
Equity securities	$	491	$	—	$	—	$	491
U.S. government and agency securities	—		216,009		—		216,009		$	—	$	200,704	$	—	$	200,704
Municipal bonds	—		22,755		—		22,755		—		23,058		—		23,058
Corporate debt securities	—		184,232		—		184,232		—		222,541		—		222,541
Mortgage-backed securities
Agency pass-through certificates	—		828,449		—		828,449		—		1,005,037		—		1,005,037
Commercial MBS	—		3,465		—		3,465		—		—		—		—
Total available-for-sale securities	491		1,254,910		—		1,255,401		—		1,451,340		—		1,451,340
Interest rate contracts	—		10,141		—		10,141		—		3,341		—		3,341
Commercial loan hedges	—		3,005		—		3,005		—		1,506		—		1,506
Borrowings hedges	—		19,193		—		19,193		—		11,751		—		11,751
Total financial assets	$	491	$	1,287,249	$	—	$	1,287,740	$	—	$	1,467,938	$	—	$	1,467,938

Financial Liabilities
Interest rate contracts	$	—	$	10,141	$	—	$	10,141	$	—	$	3,341	$	—	$	3,341
Total financial liabilities	$	—	$	10,141	$	—	$	10,141	$	—	$	3,341	$	—	$	3,341

There were no transfers between, into and/or out of Levels 1, 2 or 3 during the ~~nine~~three months ended ~~June 30,~~December 31, 2018.

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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


	September 30, 2017								September 30, 2018
	Level 1		Level 2		Level 3		Total		Level 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 securities	522		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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(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 ~~June 30,~~December 31, 2018 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 ~~June 30,~~December 31, 2018 and ~~June 30,~~December 31, 2017, and the total gains (losses) resulting from those fair value adjustments for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2018 and ~~June 30,~~December 31, 2017. The estimated fair value measurements are shown gross of estimated selling costs.


	June 30, 2018								Three Months Ended June 30, 2018			Nine Months Ended June 30, 2018			December 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)								(In thousands)
Impaired loans (1)	$	—	$	—	$	15,125	$	15,125	$	(3,120	)	$	(4,094	)	$	—	$	—	$	1,970	$	1,970	$	(726	)
Real estate owned (2)	—		—		6,354		6,354		(97		)	(656		)	—		—		520		520		(32		)
Balance at end of period	$	—	$	—	$	21,479	$	21,479	$	(3,217	)	$	(4,750	)	$	—	$	—	$	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.


	June 30, 2017								Three Months Ended June 30, 2017			Nine Months Ended June 30, 2017			December 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)								(In thousands)
Impaired loans (1)	$	—	$	—	$	7,807	$	7,807	$	(305	)	$	(1,666	)	$	—	$	—	$	688	$	688	$	(507	)
Real estate owned (2)	—		—		9,777		9,777		(467		)	(1,087		)	—		—		2,055		2,055		(180		)
Balance at end of period	$	—	$	—	$	17,584	$	17,584	$	(772	)	$	(2,753	)	$	—	$	—	$	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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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Applicable loans 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 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-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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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


		June 30, 2018				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	$	345,919	$	345,919	$	313,070	$	313,070	1	$	283,375	$	283,375	$	268,650	$	268,650
Available-for-sale securities
Equity securities	1	491		491		522		522		1	—		—		488		488
U.S. government and agency securities	2	216,009		216,009		211,077		211,077		2	200,704		200,704		207,293		207,293
Municipal bonds	2	22,755		22,755		26,624		26,624		2	23,058		23,058		22,978		22,978
Corporate debt securities	2	184,232		184,232		185,298		185,298		2	222,541		222,541		184,695		184,695
Mortgage-backed securities
Agency pass-through certificates	2	828,449		828,449		834,297		834,297		2	1,005,037		1,005,037		896,041		896,041
Commercial MBS	2	3,465		3,465		8,391		8,391		2	—		—		3,462		3,462
Total available-for-sale securities		1,255,401		1,255,401		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	1,655,450		1,595,034		1,646,856		1,635,913		2	1,571,815		1,522,571		1,610,420		1,533,742
Commercial MBS	2	15,000		15,000		—		—		2	15,000		14,925		15,000		15,028
Total held-to-maturity securities		1,670,450		1,610,034		1,646,856		1,635,913			1,586,815		1,537,496		1,625,420		1,548,770

Loans receivable	3	11,325,971		11,492,022		10,882,622		11,247,586		3	11,700,239		12,020,772		11,477,081		11,556,326
FDIC indemnification asset	3	—		—		8,968		8,564
FHLB and FRB stock	2	128,790		128,790		122,990		122,990		2	135,590		135,590		127,190		127,190
Other assets - interest rate contracts	2	10,141		10,141		1,139		1,139		2	3,341		3,341		12,731		12,731
Other assets - commercial loan hedges	2	3,005		3,005		—		—		2	1,506		1,506		3,857		3,857
Other assets - borrowings hedges	2	19,193		19,193		—		—		2	11,751		11,751		22,250		22,250

Financial liabilities
Customer accounts	2	11,287,473		10,924,562		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	2,370,000		2,365,478		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	10,141		10,141		1,139		1,139		2	3,341		3,341		12,731		12,731
Other liabilities - commercial loan hedges	2	—		—		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 that are exchange traded are considered a Level 1 input method.

Loans receivable – ~~For certain homogeneous categories~~Fair 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-rate~~adjustable-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 similar~~impaired 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 future~~cash flows. Assumptions regarding credit risk, cash flows and ~~estimated prepayments~~discount rates are judgmentally determined using ~~the current rates at which similar loans would be made to borrowers with similar credit ratings~~available market information and ~~for the same remaining term. Some loan types were valued at carrying value because~~specific borrower information.

Table 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.~~Contents

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.

~~Table of Contents~~

~~WASHINGTON FEDERAL, INC. AND SUBSIDIARIES~~

~~NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

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 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 counterparty to offset its interest rate risk. The fair value of these interest rate swaps is estimated by a third party pricing service using a discounted cash flow technique.

Commercial loan hedges – The fair value of the interest rate swaps is estimated by a third party pricing service using a discounted cash flow technique.

Borrowings hedges – The fair value of the interest rate swaps is 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.


	June 30, 2018											December 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
5 to 10 years	$	63,986	$	—	$	(1,678	)	$	62,308	2.41	%	$	59,408	$	—	$	(1,386	)	$	58,022	2.72	%
Over 10 years	153,928		122		(349		)	153,701		2.71		143,209		19		(546		)	142,682		3.30
Equity securities due
1 to 5 years	500		—		(9		)	491		1.80
Corporate debt securities due
1 to 5 years	113,727		1,687		(273		)	115,141		3.60		113,798		1,068		(1,605		)	113,261		3.93
5 to 10 years	69,964		—		(873		)	69,091		3.23		112,587		—		(3,307		)	109,280		3.35
Municipal bonds due
1 to 5 years	1,390		—		(10		)	1,380		2.05		1,406		—		(8		)	1,398		2.05
Over 10 years	20,328		1,047		—			21,375		6.45		20,318		1,342		—			21,660		6.45
Mortgage-backed securities
Agency pass-through certificates	836,777		1,563		(9,891		)	828,449		3.34		1,008,622		4,888		(8,473		)	1,005,037		3.36
Commercial MBS	3,460		5		—			3,465		4.27
	1,264,060		4,424		(13,083		)	1,255,401		3.28		1,459,348		7,317		(15,325		)	1,451,340		3.42
Held-to-maturity securities
Mortgage-backed securities
Agency pass-through certificates	1,655,450		635		(61,051		)	1,595,034		3.16		1,571,815		870		(50,114		)	1,522,571		3.16
Commercial MBS	15,000		—		—			15,000		2.94		15,000		—		(75		)	14,925		3.33
	1,670,450		635		(61,051		)	1,610,034		3.16		1,586,815		870		(50,189		)	1,537,496		3.16
	$	2,934,510	$	5,059	$	(74,134	)	$	2,865,435	3.21	%	$	3,046,163	$	8,187	$	(65,514	)	$	2,988,836	3.29	%

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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


	September 30, 2017												September 30, 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	$	9,300	$	146		$	—		$	9,446	10.38	%
1 to 5 years	5,688		2			—			5,690		1.51
5 to 10 years	69,108		—			(1,238		)	67,870		1.93		$	60,872	$	—		$	(1,473	)	$	59,399	2.55	%
Over 10 years	127,936		353			(218		)	128,071		1.92		148,099		109			(314		)	147,894		3.05
Equity securities
1 to 5 years	500		22			—			522		1.80		500		—			(12		)	488		1.80
Corporate bonds due
1 to 5 years	63,622		2,083			—			65,705		2.96		113,762		1,875			(13		)	115,624		3.59
5 to 10 years	119,960		210			(577		)	119,593		2.62		69,965		35			(929		)	69,071		3.23
Municipal bonds due
Within 1 year	2,344		10			—			2,354		1.23
1 to 5 years	1,367		55			—			1,422		2.05		1,398		—			(24		)	1,374		2.05
Over 10 years	20,343		2,505			—			22,848		6.45		20,323		1,281			—			21,604		6.45
Mortgage-backed securities
Agency pass-through certificates	828,069		8,402			(2,174		)	834,297		2.96		908,092		1,383			(13,434		)	896,041		3.29
Commercial MBS	8,350		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 certificates	1,646,856		7,143			(18,086		)	1,635,913		3.14		1,610,420		305			(76,983		)	1,533,742		3.16
Other Commercial MBS													15,000		28			—			15,028		3.03
	1,646,856		7,143			(18,086		)	1,635,913		3.14		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 ~~nine~~three months ended ~~June 30, 2018 and sales totaling $350,890,000 during the nine months ended June 30,~~December 31, 2017. There were purchases of ~~$166,696,000~~$172,076,000 of available-for-sale investment securities during the ~~nine~~three months ended ~~June 30,~~December 31, 2018 and no purchases of $40,884 during the ~~nine~~three months ended ~~June 30,~~December 31, 2017. For held-to-maturity investment securities, there were no purchases ~~totaling $170,836,000~~ during the ~~nine~~three months ended ~~June 30,~~December 31, 2018 and purchases of ~~$415,729,000~~$170,836,000 during the ~~nine~~three months ended ~~June 30,~~December 31, 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 ~~June 30,~~December 31, 2018 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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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


June 30, 2018	Less than 12 months					12 months or more					Total
December 31, 2018																Less 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	$	—		$	—	$	(1,146	)	$	118,818	$	(1,146	)	118,818		$	(1,172	)	$	61,415	$	(3,740	)	$	96,261	$	(4,912	)	157,676
Municipal bonds	(10		)	1,380		—			—		(10		)	1,380		(8		)	1,398		—			—		(8		)	1,398
U.S. government and agency securities	(64		)	43,310		(1,963		)	120,006		(2,027		)	163,316		(286		)	69,152		(1,646		)	74,212		(1,932		)	143,364
Equity securities	(9		)	491		—			—		(9		)	491
Agency pass-through certificates	(13,696		)	706,627		(57,246		)	1,401,192		(70,942		)	2,107,819
Mortgage-backed securities																(14,860		)	869,583		(43,802		)	1,077,341		(58,662		)	1,946,924
	$	(13,779	)	$	751,808	$	(60,355	)	$	1,640,016	$	(74,134	)	$	2,391,824	$	(16,326	)	$	1,001,548	$	(49,188	)	$	1,247,814	$	(65,514	)	$	2,249,362


September 30, 2017	Less than 12 months					12 months or more					Total
September 30, 2018																Less 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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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, 2018	Derivatives Assets					Derivative Liabilities
	Balance Sheet Location	Notional		Fair Value		Balance Sheet Location	Notional		Fair Value
	(In thousands)					(In thousands)
Client swap program	Other assets	$	385,302	$	3,341	Other liabilities	$	385,302	$	3,341
Commercial loan fair value hedges	Other assets	95,645		1,506		Other liabilities	—		—
Borrowings cash flow hedges	Other assets	700,000		11,751		Other liabilities	—		—
		$	1,180,947	$	16,598		$	385,302	$	3,341



September 30, 2018	Derivatives Assets					Derivative Liabilities
Interest rate contract purpose	Balance Sheet Location	Notional		Fair Value		Balance Sheet Location	Notional		Fair Value
	(In thousands)					(In thousands)
Client swap program	Other assets	$	395,396	$	12,731	Other liabilities	$	395,396	$	12,731
Commercial loan fair value hedges	Other assets	97,927		3,857		Other liabilities	—		—
Borrowings cash flow hedges	Other assets	700,000		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 recorded	Carrying value of hedged items		Cumulative 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 relationships	2018
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, 2018	Interest income on loans receivable			Interest 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 items	2,279
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 $781,626,000 and $1,035,573,000 notional in interest rate swaps to hedge this exposure as of June 30, 2018 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 ~~nine~~three months ended ~~June 30,~~December 31, 2018 and 2017 as the changes in ~~value for the asset and liability side of the swaps offset each other.~~

The Company has 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 June 30, 2018 and September 30, 2017.

~~The Company also enters into interest rate swaps to hedge the interest rate risk of individual~~receive 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. The interest rate swaps in these hedging relationships had a notional amount of $97,927,000 and $52,936,000 as of June 30, 2018 and September 30, 2017, respectively.~~pay fixed swap offset each other.

The following table presents the ~~fair value and balance sheet classification~~impact of ~~derivatives at June 30, 2018 and September 30, 2017:~~

Asset Derivatives Liability Derivatives
June 30, 2018 September 30, 2017 June 30, 2018 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 $ 10,141
Other assets $ 1,139
Other liabilities $ 10,141
Other liabilities $ 1,139
Commercial loan hedges Other assets 3,005
Other assets —
Other liabilities —
Other liabilities 174
Borrowings hedges Other assets 19,193
Other assets —
Other liabilities —
Other liabilities 1,693
$ 32,339
$ 1,139
$ 10,141
$ 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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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)



(In thousands)		Three Months Ended December 31,
Derivative instruments	Classification of gain/(loss) recognized in income on derivative instrument	2018
Interest rate contracts:
Pay fixed/receive floating swap	Other noninterest income	$	(9,390	)
Receive fixed/pay floating swap	Other noninterest income	9,390
		$	—

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE H – ~~Income Taxes~~Revenue from Contracts with Customers

On December 22, 2017, the U.S. Government enacted significant new tax legislation (the “Tax Act”). For businesses, the Tax 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. Because~~2018, 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 of 24.53% for its fiscal year 2018 and then 21% thereafter.~~

~~Under generally accepted accounting principles, the Company uses the asset and liability method of accounting for~~adopted ASU No. 2014-09, Revenue from Contracts with Customers ("ASC 606"). Since net interest income ~~taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the~~on 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 result of the reduction in the corporate income tax rate under the Tax Act, 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 using the aforementioned blended rate. All remaining deferred tax assets and liabilities were re-measured using the new statutory federal rate of 21%. These re-measurements resulted in a discrete tax benefit estimate of $5,387,000 that was recognized during the nine months ended June 30, 2018. The Company’s revaluation of its deferred tax assets and liabilities is excluded from this guidance, a significant majority of our revenues are not subject to ~~further clarification~~the new guidance.

Revenue streams that are within the scope of the ~~Tax Act~~new guidance are presented within noninterest income and ~~refinements~~are, in general, recognized as revenue at the same time the Company's obligation to the customer is satisfied. Most of ~~its estimates.~~the Company's customer contracts that are within the scope of the new guidance are cancelable by either party without penalty and are short-term in nature. These sources of revenue 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, 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 performance obligation related to each of these fees is generally satisfied, and the related revenue recognized, at the time the service is provided (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 underlying transaction. Interchange fees from debit and credit 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 any expenses paid to the principal (the card network in this case).

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. earns revenue in the form of commissions paid by the insurance carriers for policies that have been sold. In addition to the origination commission, WAFD Insurance Group, Inc. may also receive contingent incentive fees based on the volume of business generated for the insurance carrier and based on policy renewal rates.

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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

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 of the Company at managing the risks involved in the remediation efforts associated with its Bank Secrecy Act program, costs of enhancements to the Bank’s BSA program are greater than anticipated; and governmental authorities undertake enforcement actions or 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. 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 30^th. All references to ~~2017~~2018 represent balances as of September 30, ~~2017~~2018 or activity for the fiscal year then ended.

INTEREST RATE RISK

Based on management'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 58% of total deposits as of ~~June 30,~~December 31, 2018 while the composition of the investment securities portfolio is ~~26%~~24% variable and ~~74%~~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 ~~$1,670,450,000~~$1,586,815,000 of mortgage-backed securities that it has designated as held-to-maturity and are carried at amortized cost. As of ~~June 30,~~December 31, 2018, the net unrealized loss on these securities was ~~$60,416,000.~~$49,319,000. The Company has ~~$1,255,401,000~~$1,451,340,000 of available-for-sale securities that are carried at fair value. As of ~~June 30,~~December 31, 2018, the net unrealized loss on these securities was ~~$8,659,000.~~$8,008,000. The Company has executed interest rate swaps to hedge interest rate risk on certain FHLB borrowings. The unrealized gain on these interest rate swaps as of ~~June 30,~~December 31, 2018 was ~~$19,193,000.~~$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. The Company estimates the sensitivity of its 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 the 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 decrease by ~~1.2%~~2.6% in the next year. This compares to an estimated ~~increase~~decrease of ~~3.0%~~2.3% as of the September 30, ~~2017~~2018 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 decrease of ~~0.4%~~1.3% in the first year and decrease of ~~4.0%~~6.5% in the second year assuming a constant balance sheet and no management intervention.

NPV Sensitivity. NPV is an estimate of the market value of shareholders' equity. NPV is calculated 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 NPV to changes in interest rates provides a view of interest rate risk as it incorporates all future expected cash flows. As of ~~June 30,~~December 31, 2018, in the event of an immediate and parallel increase of 200 basis points in interest rates, the NPV is estimated to decline by ~~$413,496,000~~$456,791,000 or ~~19.3%~~22.5% and the NPV to total assets ratio to decline to ~~11.9%~~10.6% from a base of ~~13.8%~~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 change in NPV sensitivity and lower 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 mortgage-backed securities as of ~~June 30,~~December 31, 2018.

~~Repricing Gap Analysis~~. At June 30, 2018, the Company had approximately $1,832,133,000 more in liabilities subject to maturity or repricing in the next year than assets, which resulted in a one-year repricing gap of (11.6)% of total assets. This was a decrease from the (15.7)% gap as of September 30, 2017. A negative repricing gap implies that funding costs on paying liabilities 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.

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~~WASHINGTON FEDERAL, INC. AND SUBSIDIARIES~~

Interest Rate 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 ~~increased~~decreased to ~~2.93%~~2.86% at ~~June 30,~~December 31, 2018 from 2.90% at September 30, ~~2017~~2018. The spread ~~increase~~decrease of 34 basis points is primarily due to the rise in short-term interest rates, which resulted in a 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 partially offset by a higher rate being paid on interest-bearing deposits and FHLB borrowings.~~securities. As of ~~June 30,~~December 31, 2018, the weighted average rate on earning assets increased by 1910 basis points to ~~4.01%~~4.17% compared to September 30, ~~2017,~~2018, while the weighted average cost of funds increased by 1614 basis points to ~~1.08%~~1.31%. The interest rate spread ~~increased~~decreased to ~~2.93%~~2.86% at ~~June 30,~~December 31, 2018 from ~~2.85%~~2.92% at ~~June 30, 2017.~~December 31, 2017 due to the same factors described above.

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

Net Interest Margin. Net interest margin is measured as net interest income divided by average earning assets for the period. Net interest margin ~~increased~~decreased to ~~3.29%~~3.21% for the quarter ended ~~June 30,~~December 31, 2018 from ~~3.13%~~3.26% for the quarter ended ~~June 30,~~December 31, 2017. The yield on earning assets increased 2827 basis points to ~~4.26%~~4.35% and the cost of interest bearing liabilities increased 1333 basis point to ~~1.04%.~~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 that carry higher yields on average. The higher 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 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.


	Three Months Ended June 30, 2018						Three Months Ended June 30, 2017						Three Months Ended December 31, 2018						Three Months Ended December 31, 2017
	Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate
	($ in thousands)						($ in thousands)						($ in thousands)						($ in thousands)
Assets
Loans receivable	$	11,322,932	$	131,541	4.66	%	$	10,579,593	$	117,457	4.45	%	$	11,542,621	$	137,065	4.71	%	$	10,984,886	$	124,511	4.50	%
Mortgaged-backed securities	2,550,004		18,022		2.83		2,551,598		15,992		2.51		2,592,535		19,192		2.94		2,521,407		16,899		2.66
Cash & Investments	584,918		4,077		2.80		627,197		3,373		2.16		579,580		4,752		3.25		559,370		3,273		2.32
FHLB & FRB stock	135,313		1,432		4.24		124,968		894		2.87		132,305		1,613		4.84		126,229		1,097		3.45

Total interest-earning assets	14,593,167		155,072		4.26	%	13,883,356		137,716		3.98	%	14,847,041		162,622		4.35	%	14,191,892		145,780		4.08	%
Other assets	1,154,328						1,142,899						1,167,575						1,149,607
Total assets	$	15,747,495					$	15,026,255					$	16,014,616					$	15,341,499

Liabilities and Equity
Customer accounts	$	11,075,998	$	18,887	0.68	%	$	10,567,710	$	12,764	0.48	%	$	11,436,685	$	26,579	0.92	%	$	10,850,742	$	14,638	0.54	%
FHLB advances	2,533,077		16,333		2.59		2,274,451		16,337		2.88		2,457,880		16,891		2.73		2,305,978		15,407		2.65

Total interest-bearing liabilities	13,609,075		35,220		1.04	%	12,842,161		29,101		0.91	%	13,894,565		43,470		1.24	%	13,156,720		30,045		0.91	%
Other liabilities	142,557						155,460						129,396						168,382
Total liabilities	13,751,632						12,997,621						14,023,961						13,325,102
Stockholders' equity	1,995,863						2,028,634						1,990,655						2,016,397

Total liabilities and equity	$	15,747,495					$	15,026,255					$	16,014,616					$	15,341,499

Net interest income			$	119,852					$	108,615					$	119,152					$	115,735

Net interest margin					3.29	%					3.13	%					3.21	%					3.26	%

As of ~~June 30,~~December 31, 2018, total assets had increased by ~~$512,741,000~~$322,402,000 to ~~$15,766,321,000~~$16,188,126,000 from ~~$15,253,580,000~~$15,865,724,000 at September 30, ~~2017~~2018. During the ~~nine~~three months ended ~~June 30,~~December 31, 2018, cash and cash equivalents increased by ~~$32,849,000,~~$14,725,000, loans receivable increased ~~$443,349,000,~~$223,158,000, and investment securities increased by ~~$12,786,000.~~$97,778,000.

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~~WASHINGTON FEDERAL, INC. AND SUBSIDIARIES~~

Cash and cash equivalents of ~~$345,919,000~~$283,375,000 and stockholders’ equity of ~~$1,986,263,000~~$1,983,089,000 as of ~~June 30,~~December 31, 2018 provide management with flexibility in managing interest rate risk going forward.

LIQUIDITY AND CAPITAL RESOURCES

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

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, 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 ~~$345,919,000~~$283,375,000 at ~~June 30,~~December 31, 2018, 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 ~~June 30,~~December 31, 2018 was ~~$1,986,263,000,~~$1,983,089,000, or ~~12.60%~~12.25% of total assets. This is a decrease of ~~$19,425,000~~$13,819,000 from September 30, ~~2017~~2018 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 ~~nine~~three months ended ~~June 30,~~December 31, 2018 by net income of ~~$152,335,000,~~$52,942,000, the payment of ~~$41,091,000~~$14,638,000 in cash dividends, treasury stock purchases of ~~$136,941,000,~~$48,930,000, as well as an other comprehensive ~~income~~loss of ~~$3,122,000.~~$5,403,000. The ratio of tangible capital to tangible assets at ~~June 30,~~December 31, 2018 was ~~10.83%~~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.

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's financial statements.

Federal banking agencies establish regulatory capital rules that 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 on 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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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 Guidelines
Capital Ratio Ratio Ratio
($ in thousands)
June 30, 2018
Common Equity Tier I risk-based capital ratio:
      The Company $ 1,667,375
14.81 % 4.50 % NA
      The Bank 1,660,952
14.74 % 4.50 % 6.50 %
Tier I risk-based capital ratio:
      The Company 1,667,375
14.81 % 6.00 % NA
      The Bank 1,660,952
14.74 % 6.00 % 8.00 %
Total risk-based capital ratio:
      The Company 1,802,791
16.01 % 8.00 % NA
      The Bank 1,796,368
15.94 % 8.00 % 10.00 %
Tier 1 Leverage ratio:
      The Company 1,667,375
10.80 % 4.00 % NA
      The Bank 1,660,952
10.75 % 4.00 % 5.00 %

September 30, 2017
Common Equity Tier 1 risk-based capital ratio:
      The Company $ 1,701,327
15.99 % (1) 4.50 % NA
      The Bank 1,668,314
15.68 % (1) 4.50 % 6.50 %
Tier I risk-based capital ratio:
      The Company 1,701,327
15.99 % (1) 6.00 % NA
      The Bank 1,668,314
15.68 % (1) 6.00 % 8.00 %
Total risk-based capital ratio:
      The Company 1,828,935
17.22 % (1) 8.00 % NA
      The Bank 1,795,929
16.91 % (1) 8.00 % 10.00 %
Tier 1 Leverage ratio:
      The Company 1,701,327
11.49 % 4.00 % NA
      The Bank 1,668,314
11.27 % 4.00 % 5.00 %

~~(1) Ratio has been updated from previously reported % to correct immaterial error in the calculation of risk-weighted assets, which is the denominator used in calculating the ratio.~~



	Actual				Minimum Capital Adequacy Guidelines		Minimum Well-Capitalized Guidelines
($ in thousands)	Capital		Ratio		Ratio		Ratio

December 31, 2018
Common Equity Tier I risk-based capital ratio:
The Company	$	1,670,577	14.44	%	4.50	%	NA
The Bank	1,663,692		14.38	%	4.50	%	6.50	%
Tier I risk-based capital ratio:
The Company	1,670,577		14.44	%	6.00	%	NA
The Bank	1,663,692		14.38	%	6.00	%	8.00	%
Total risk-based capital ratio:
The Company	1,807,992		15.63	%	8.00	%	NA
The Bank	1,801,107		15.56	%	8.00	%	10.00	%
Tier 1 Leverage ratio:
The Company	1,670,577		10.63	%	4.00	%	NA
The Bank	1,663,692		10.58	%	4.00	%	5.00	%

September 30, 2018
Common Equity Tier 1 risk-based capital ratio:
The Company	$	1,678,475	14.71	%	4.50	%	NA
The Bank	1,661,628		14.55	%	4.50	%	6.50	%
Tier I risk-based capital ratio:
The Company	1,678,475		14.71	%	6.00	%	NA
The Bank	1,661,628		14.55	%	6.00	%	8.00	%
Total risk-based capital ratio:
The Company	1,814,981		15.91	%	8.00	%	NA
The Bank	1,798,135		15.75	%	8.00	%	10.00	%
Tier 1 Leverage ratio:
The Company	1,678,475		10.85	%	4.00	%	NA
The Bank	1,661,628		10.74	%	4.00	%	5.00	%

CHANGES IN FINANCIAL CONDITION

Cash and cash equivalents: Cash and cash equivalents are ~~$345,919,000~~$283,375,000 at ~~June 30,~~December 31, 2018, an increase of ~~$32,849,000,~~$14,725,000, or ~~10.5%~~5.5%, since September 30, ~~2017.~~2018.

Available-for-sale and held-to-maturity investment securities: Available-for-sale securities ~~decreased $10,808,000,~~increased $136,383,000, or ~~0.9%~~10.4%, during the ~~nine~~three months ended ~~June 30,~~December 31, 2018, mostly due to ~~principal repayments~~purchases of $172,076,000 and ~~maturities of $156,240,000 and an increase~~a decrease in the net unrealized loss of ~~$18,282,000,~~$3,515,000, partially offset by ~~purchases~~principal repayments and maturities of ~~$166,696,000.~~$38,118,000. During the same period, the balance of held-to-maturity securities ~~increased~~decreased by ~~$23,594,000~~$38,605,000 primarily due to ~~purchases of $170,836,000 partially offset by~~ principal pay-downs and

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maturities of ~~$143,837,000.~~$37,736,000. As of ~~June 30,~~December 31, 2018, the Company had a net unrealized loss on available-for-sale securities of ~~$8,659,000,~~$8,008,000, which is included on a net of tax basis in accumulated other comprehensive income (loss).

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Loans receivable: Loans receivable, net of related contra accounts, increased by ~~$443,349,000~~$223,158,000 to ~~$11,325,971,000~~$11,700,239,000 at ~~June 30,~~December 31, 2018, compared to $~~10,882,622,000~~11,477,081,000 at September 30, ~~2017~~2018. The increase resulted primarily from originations of ~~$2,868,476,000 and purchases of $143,605,000,~~$1,044,766,000 partially offset by loan principal repayments of ~~$2,493,714,000.~~$871,794,000. Commercial loan originations accounted for ~~68%~~73% of total originations and consumer loan originations were ~~32%~~27% during the period. ~~Purchased loans during the period 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.


	June 30, 2018				September 30, 2017				Change					December 31, 2018				September 30, 2018				Change
	($ in thousands)				($ in thousands)				$			%		($ in thousands)				($ in thousands)				$			%
Gross loans by category
Single-family residential	$	5,745,598	45.1	%	$	5,711,004	46.8	%	$	34,594		0.6	%	$	5,844,963	44.9	%	$	5,798,966	45.1	%	$	45,997		0.8	%
Construction	1,885,034		14.8		1,597,996		13.1		287,038			18.0		1,841,674		14.1		1,890,668		14.7		(48,994		)	(2.6	)
Construction - custom	612,688		4.8		602,631		4.9		10,057			1.7		607,071		4.7		624,479		4.9		(17,408		)	(2.8	)
Land - acquisition & development	150,936		1.2		124,308		1.0		26,628			21.4		181,323		1.4		155,204		1.2		26,119			16.8
Land - consumer lot loans	103,118		0.8		104,405		0.9		(1,287		)	(1.2	)	100,563		0.8		102,036		0.8		(1,473		)	(1.4	)
Multi-family	1,346,534		10.6		1,303,148		10.7		43,386			3.3		1,405,172		10.8		1,385,125		10.8		20,047			1.4
Commercial real estate	1,435,418		11.3		1,434,610		11.8		808			0.1		1,526,887		11.7		1,452,168		11.3		74,719			5.1
Commercial & industrial	1,133,075		8.9		1,093,360		9.0		39,715			3.6		1,213,738		9.3		1,140,874		8.9		72,864			6.4
HELOC	136,766		1.1		144,850		1.2		(8,084		)	(5.6	)	136,856		1.1		130,852		1.0		6,004			4.6
Consumer	188,125		1.5		85,075		0.7		103,050			121.1		162,221		1.2		173,306		1.3		(11,085		)	(6.4	)
Total gross loans	12,737,292		100	%	12,201,387		100	%	535,905			4.4	%	13,020,468		100	%	12,853,678		100	%	166,790			1.3	%
Less:
Allowance for loan losses	128,666				123,073				5,593			4.5	%	131,165				129,257				1,908			1.5	%
Loans in process	1,230,132				1,149,934				80,198			7.0		1,138,308				1,195,506				(57,198		)	(4.8	)
Net deferred fees, costs and discounts	52,523				45,758				6,765			14.8		50,756				51,834				(1,078		)	(2.1	)
Total loan contra accounts	1,411,321				1,318,765				92,556			7.0		1,320,229				1,376,597				(56,368		)	(4.1	)
Net Loans	$	11,325,971			$	10,882,622			$	443,349		4.1	%	$	11,700,239			$	11,477,081			$	223,158		1.9	%

Non-performing assets: Non-performing assets ~~increased $1,621,000~~decreased $7,363,000 during the ~~nine~~three months ended ~~June 30,~~December 31, 2018 to ~~$71,859,000~~$62,730,000 from ~~$70,238,000~~$70,093,000 at September 30, ~~2017~~2018. The change is due to ~~the $11,004,000 increase~~a $4,236,000 decrease in non-accrual loans and ~~$9,383,000~~$3,127,000 decline in ~~REO.~~real estate owned ("REO"). Non-performing assets as a percentage of total assets was ~~0.46%~~0.39% at ~~June 30,~~December 31, 2018 compared to ~~0.46%~~0.44% at September 30, ~~2017~~2018.

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The following table sets forth information regarding restructured loans and non-performing assets.


	June 30, 2018					September 30, 2017					December 31, 2018					September 30, 2018
	($ in thousands)										($ in thousands)
Restructured loans:
Single-family residential	$	153,356		89.4	%	$	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 loans	5,136			3.0		7,949			3.8		4,601			3.1		4,916			3.1
Multi - family	461			0.3		493			0.2		435			0.3		448			0.3
Commercial real estate	7,162			4.2		15,079			7.3		5,552			3.7		6,254			4.0
Commercial & industrial	3,924			2.3		—			—		4,159			2.8		4,290			2.7
HELOC	1,491			0.9		1,728			0.8		968			0.6		976			0.6
Consumer	73			—		97			—		67			—		70			—
Total restructured loans (1)	$	171,603		100	%	$	207,377		100	%	$	149,693		100	%	$	156,858		100	%
Non-accrual loans:
Single-family residential	$	26,119		43.1	%	$	27,930		56.3	%	$	24,748		48.1	%	$	27,643		49.6	%
Construction	1,841			3.0		—			—		1,380			2.7		2,427			4.4
Construction - custom	—			—		91			0.2		—			—		—			—
Land - acquisition & development	1,757			2.9		296			0.6		438			0.9		920			1.7
Land - consumer lot loans	642			1.1		605			1.2		785			1.5		787			1.4
Multi-family	—			—		139			0.3		—			—		—			—
Commercial real estate	9,684			16.0		11,815			23.8		9,478			18.4		8,971			16.1
Commercial & industrial	19,876			32.8		8,082			16.3		13,995			27.2		14,394			25.8
HELOC	637			1.1		531			1.1		599			1.2		523			0.9
Consumer	28			—		91			0.2		27			0.1		21			—
Total non-accrual loans	60,584			100	%	49,580			100	%	51,450			100	%	55,686			100	%
Real estate owned	11,275					20,658					8,171					11,298
Other property owned											3,109					3,109
Total non-performing assets	$	71,859				$	70,238				$	62,730				$	70,093
Total non-performing assets and performing restructured loans as a percentage of total assets	1.51		%			1.79		%			1.28		%			1.39		%
Total Assets
(1) Restructured loans were as follows:
Performing	$	165,857		96.7	%	$	202,272		97.5	%	$	143,768		96.0	%	$	150,667		96.1	%
Non-performing (included in non-accrual loans above)	5,746			3.3		5,105			2.5		5,925			4.0		6,191			3.9
	$	171,603		100	%	$	207,377		100	%	$	149,693		100	%	$	156,858		100	%

For the ~~nine~~three months ended ~~June 30,~~December 31, 2018, the Company recognized ~~$3,926,000~~$843,000 in interest income on cash payments received from borrowers on non-accrual loans. The Company would have recognized interest income of ~~$1,741,000~~$587,000 for the same period had these loans performed according to their original contract terms. Recognized interest income for the ~~nine~~three months ended ~~June 30,~~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 ~~$50,684,000~~$43,479,000 of loans that were less than 90 days delinquent at ~~June 30,~~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 ~~0.78%~~1.54% at ~~June 30,~~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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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

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 89.4% of restructured loans as of ~~June 30,~~December 31, 2018. The concession for these loans is

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~~WASHINGTON FEDERAL, INC. AND SUBSIDIARIES~~

typically a payment reduction through a rate reduction of 100 to 200 bps for a specific term, usually six to twenty-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.


June 30, 2018	Loans Collectively Evaluated for Impairment						Loans Individually Evaluated for Impairment
December 31, 2018													Loans Collectively Evaluated for Impairment						Loans Individually Evaluated for Impairment
	Allowance Allocation		Recorded Investment of Loans		Ratio		Allowance Allocation		Recorded Investment of Loans		Ratio		Allowance Allocation		Recorded Investment of Loans		Ratio		Allowance Allocation		Recorded Investment of Loans		Ratio
	($ in thousands)						($ in thousands)						($ in thousands)						($ in thousands)
Single-family residential	$	34,401	$	5,726,737	0.6	%	$	—	$	24,139	—	%	$	31,484	$	5,833,667	0.5	%	$	—	$	16,259	—	%
Construction	30,133		1,007,676		3.0		—		4,563		—		31,463		1,045,849		3.0		—		1,380		—
Construction - custom	2,014		285,858		0.7		—		—		—		1,926		299,622		0.6		—		—		—
Land - acquisition & development	7,700		118,323		6.5		—		3,184		—		9,147		145,197		6.3		9		438		2.1
Land - consumer lot loans	2,907		97,310		3.0		—		833		—		2,144		95,628		2.2		—		303		—
Multi-family	8,086		1,343,468		0.6		5		3,045		0.2		7,880		1,404,714		0.6		4		435		0.9
Commercial real estate	11,502		1,388,029		0.8		77		31,805		0.2		12,569		1,512,064		0.8		142		14,823		1.0
Commercial & industrial	27,515		1,087,664		2.5		—		45,400		—		29,934		1,199,565		2.5		345		14,206		2.4
HELOC	811		134,522		0.6		—		562		—		1,064		135,369		0.8		—		519		—
Consumer	3,515		188,004		1.9		—		26		—		3,054		161,958		1.9		—		162		—
	$	128,584	$	11,377,591	1.1	%	$	82	$	113,557	0.1	%	$	130,665	$	11,833,633	1.1	%	$	500	$	48,525	1.0	%

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September 30, 2017	Loans Collectively Evaluated for Impairment						Loans Individually Evaluated for Impairment
September 30, 2018													Loans Collectively Evaluated for Impairment						Loans Individually Evaluated for Impairment
	Allowance Allocation		Recorded Investment of Loans		Ratio		Allowance Allocation		Recorded Investment of Loans		Ratio		Allowance Allocation		Recorded Investment of Loans		Ratio		Allowance Allocation		Recorded Investment of Loans		Ratio
	($ in thousands)						($ in thousands)						($ in thousands)						($ in thousands)
Single-family residential	$	36,892	$	5,713,576	0.7	%	$	—	$	5,552	—	%	$	33,033	$	5,782,870	0.6	%	$	—	$	21,345	—	%
Construction	24,556		793,958		3.1		—		—		—		31,317		1,060,428		3.0		—		2,427		—
Construction - custom	1,944		277,495		0.7		—		105		—		1,842		289,192		0.6		—		—		—
Land - acquisition & development	6,828		104,767		6.5		1		89		1.0		7,969		122,639		6.5		9		920		1.0
Land - consumer lot loans	2,649		96,337		2.8		—		171		—		2,164		96,583		2.2		—		507		—
Multi-family	7,857		1,302,625		0.6		5		493		1.0		8,325		1,384,655		0.6		4		448		1.0
Commercial real estate	11,698		1,391,668		0.8		120		21,765		0.6		11,702		1,432,791		0.8		150		19,378		0.8
Commercial & industrial	28,524		1,093,210		2.6		—		81		—		28,348		1,126,438		2.5		354		14,437		2.5
HELOC	855		141,689		0.6		—		215		—		781		128,715		0.6		—		1,162		—
Consumer	1,144		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 the Company's loan mix and the proportionate 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 ~~June 30,~~December 31, 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 ~~$135,416,000,~~$137,415,000, or 1.06% of gross loans, is sufficient to absorb estimated losses inherent in the 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 ~~June 30,~~December 31, 2018.

Real estate owned: ~~Real estate owned ("REO")~~REO decreased during the ~~nine~~three months ended ~~June 30,~~December 31, 2018 by ~~$9,383,000~~$3,127,000 to ~~$11,275,000,~~$8,171,000, primarily due to sales of REO properties during the period.

Intangible assets: Intangible assets ~~increased~~decreased to ~~$311,796,000~~$310,776,000 as of ~~June 30,~~December 31, 2018 from ~~$298,682,000~~$311,286,000 as of September 30, ~~2017.~~2018. The ~~increase~~decrease was ~~primarily~~ due to ~~an immaterial correction recorded during the three months ended December 31, 2017 related to acquisitions~~amortization 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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Customer accounts: Customer accounts increased ~~$452,465,000,~~$174,546,000, or ~~4.2%~~1.5%, to ~~$11,287,473,000~~$11,561,692,000 at ~~June 30,~~December 31, 2018 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.


	June 30, 2018						September 30, 2017						December 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)
Non-interest checking	$	1,460,096	12.9	%	—	%	$	1,258,274	11.6	%	—	%	$	1,409,236	12.2	%	—	%	$	1,401,226	12.3	%	—	%
Interest checking	1,787,035		15.8		0.45		1,760,821		16.3		0.23		1,881,740		16.3		0.64		1,778,520		15.6		0.50
Savings (passbook/statement)	865,102		7.7		0.12		888,881		8.2		0.11		807,608		7.0		0.11		836,501		7.3		0.11
Money market	2,460,533		21.8		0.43		2,453,182		22.6		0.19		2,645,762		22.9		0.76		2,566,096		22.5		0.65
Time deposits	4,714,707		41.8		1.39		4,473,850		41.3		1.09		4,817,346		41.7		1.69		4,804,803		42.2		1.50
Total	$	11,287,473	100	%	0.75	%	$	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 ~~$2,370,000,000~~$2,540,000,000 as of ~~June 30,~~December 31, 2018 from ~~$2,225,000,000~~$2,330,000,000 as of September 30, ~~2017.~~2018. The weighted average rate for FHLB borrowings was ~~2.64%~~2.75% as of ~~June 30,~~December 31, 2018 and ~~2.80%~~2.66% at September 30, ~~2017.~~2018. The ~~decrease in the rate~~increase was ~~primarily~~ due to ~~the maturity of certain long-term~~higher rates on short-term FHLB advances.

Stockholders' equity: The Company’s total stockholders' equity at ~~June 30,~~December 31, 2018 was ~~$1,986,263,000,~~$1,983,089,000, or ~~12.60%~~12.25% of total assets. This was a decrease of ~~$19,425,000~~$13,819,000 from the September 30, ~~2017~~2018 total of ~~$2,005,688,000,~~$1,996,908,000, or ~~13.15%~~12.59% of total assets. The Company’s equity was impacted in the ~~nine~~three months ended ~~June 30,~~December 31, 2018 by net income of ~~$152,335,000,~~$52,942,000, the payment of ~~$41,091,000~~$14,638,000 in cash dividends, treasury stock purchases of ~~$136,941,000,~~$48,930,000, as well as an other comprehensive ~~income~~loss of ~~$3,122,000.~~$5,403,000.

RESULTS OF OPERATIONS

Net Income: The Company recorded net income of ~~$51,394,000~~$52,942,000 for the three months ended ~~June 30,~~December 31, 2018 compared to ~~$44,112,000~~$51,670,000 for the prior year quarter. ~~The Company recorded net income of $152,335,000 for the nine months ended June 30, 2018 compared to $127,428,000 for the same period one year ago.~~

Net Interest Income: For the three months ended ~~June 30,~~December 31, 2018, net interest income was ~~$119,852,000,~~$119,152,000, which is ~~$11,237,000~~$3,417,000 higher than the same quarter of the prior year. Net interest margin was ~~3.29%~~3.21% for the quarter ended ~~June 30,~~December 31, 2018 compared to ~~3.13%~~3.26% for the quarter ended ~~June 30,~~December 31, 2017. The increase in net interest income was primarily due to the average balance of earning assets increasing by ~~$709,811,000~~$655,149,000 and the yield on earning assets increasing to ~~4.26%~~4.35% from ~~3.98%~~4.08%, partially offset by a higher average rate paid on interest-bearing liabilities, which was ~~1.04%~~1.24% for the three months ended ~~June 30,~~December 31, 2018 compared to 0.91% for the same quarter one year ago. 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 that carry higher yields on average. The higher rate ~~in interest bearing~~on 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 with higher rates. For the nine months ended June 30, 2018, net interest income was $352,888,000, which is $33,394,000 higher than the same period for the prior year. Net interest margin was 3.27% for the nine months ended June 30, 2018 compared to 3.10% for the same period for the prior year. The improvements in net interest income and net interest margin for the nine months ended June 30, 2018 were also due to growth in earning assets, the rise in short-term interest rates and changes in mix.

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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Rate / Volume Analysis:


	Comparison of Three Months Ended 06/30/18 and 06/30/17									Comparison of Nine Months Ended 06/30/18 and 06/30/17									Comparison of Three Months Ended 12/31/18 and 12/31/17
	Volume			Rate			Total			Volume			Rate			Total
	(In thousands)									(In thousands)
($ in thousands)																			Volume		Rate			Total
Interest income:
Loans receivable	$	8,423		$	5,661		$	14,084		$	29,641		$	4,614		$	34,255		$	6,539	$	6,015		$	12,554
Mortgaged-backed securities	(10		)	2,040			2,030			(199		)	7,780			7,581			485		1,808			2,293
Investments (1)	(189		)	1,431			1,242			(1,816		)	3,233			1,417			173		1,822			1,995
All interest-earning assets	8,224			9,132			17,356			27,626			15,627			43,253			7,197		9,645			16,842
Interest expense:
Customer accounts	633			5,490			6,123			1,400			10,366			11,766			850		11,091			11,941
FHLB advances and other borrowings	1,747			(1,751		)	(4		)	3,511			(5,418		)	(1,907		)	1,018		466			1,484
All interest-bearing liabilities	2,380			3,739			6,119			4,911			4,948			9,859			1,868		11,557			13,425
Change in net interest income	$	5,844		$	5,393		$	11,237		$	22,715		$	10,679		$	33,394		$	5,329	$	(1,912	)	$	3,417

___________________


(1)	Includes interest on cash equivalents and dividends on FHLB & FRB ~~stock~~stock.

Provision (Release) for Loan Losses: The Company recorded a ~~provision for~~release of loan ~~losses~~loss allowance of ~~$1,000,000~~$500,000 for the three months ended ~~June 30,~~December 31, 2018, compared with no provision for loan losses for the three months ended ~~June 30,~~December 31, 2017. ~~A provision for loan losses of $50,000 and a release of allowance for loan losses of $1,600,000 was recorded during the nine months ended June 30, 2018 and June 30, 2017, respectively.~~ 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 ~~$90,000~~$1,408,000 for the three months ended ~~June 30,~~December 31, 2018, compared to net recoveries of ~~$1,252,000~~$3,082,000 during the three months ended ~~June 30, 2017. Recoveries, net of charge-offs, totaled $4,543,000 for the nine months ended June 30, 2018, compared to net recoveries of $11,764,000 during the nine months ended June 30,~~December 31, 2017.

Other Income: The three months ended ~~June 30,~~December 31, 2018 results include total other income of ~~$12,451,000~~$19,009,000 compared to ~~$13,922,000~~$6,795,000 for the same period one year ~~ago.~~ago, a $12,214,000 increase. The decrease is primarily due to gains recognized on bank-owned life insurance during the three months ended June 30, 2017. Results for the nine months ended June 30, 2018 include total other income of $31,833,000 compared to $35,954,000 for the same period one year ago. The decrease during the nine months ended June 30, 2018increase is primarily due to a ~~$8,550,000 charge recorded during~~net gain of $6,400,000 recognized this quarter from the ~~quarter ended December 31, 2017 for asset~~sale and ~~liability~~ valuation adjustments ~~associated with~~of fixed assets as well as $8,550,000 of expense from FDIC loss share agreements. The Bank initiated discussions with the FDIC in December 2017 regarding early termination of its remaining FDIC loss share agreements, which relate to the Horizon Bank and Home Valley Bank acquisitions. In May 2018, the Bank finalized the early termination agreement and paid $39,906,000 to settle the FDIC clawback liability. This amount is consistent with the liability on the balance sheet as of March 31, 2018 so no additional gain or loss was recordedvaluation adjustments in the three months ended June 30, 2018. Under the termination agreement, all rights and obligations of the Bank and the FDIC have been resolved and completed. As such, future recoveries, gains, losses and expenses related to the previously covered assets will now be recognized entirely by the Bank and the FDIC will no longer share in such gains or losses. The impact of these FDIC loss share valuation adjustments was partially offset by a $3,697,000 increase in deposit fee income, which was driven mostly by the 2017 launch of the Company's new "Green Checking" product.December 31, 2017.

Other Expense: The three months ended ~~June 30,~~December 31, 2018 results include total other expense of ~~$66,977,000~~$71,672,000 compared to ~~$57,062,000~~$61,941,000 for the same period one year ago, a ~~$9,915,000~~$9,731,000 or ~~17.4%~~15.7% increase. The Company recognized ~~$4.9 million~~$3,600,000 of non-recurring expense during the three months ended ~~June 30,~~December 31, 2018 related to enhancements of its Bank Secrecy Act ("BSA") program and ~~projects~~estimates that it will incur an additional ~~$10,000,000~~$2,000,000 of non-recurring BSA related costs spread over the next ~~four~~two quarters. ~~Once~~The Company has taken the ~~program is steadied, BSA costs are expected~~opportunity allotted by the change in the tax law to ~~be approximately $2,000,000 per quarter.~~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 ~~$2,276,000~~$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 ~~1,869~~1,910 and ~~1,815~~1,829 at ~~June 30,~~December 31, 2018 and 2017, respectively. Information technology costs increased by ~~$3,501,000~~$1,111,000 and other expenses increased by ~~$2,654,000~~$3,652,000 for the three months ended ~~June 30,~~December 31, 2018 as both were elevated primarily due to the aforementioned Bank Secrecy Act program enhancements and other technology platform initiatives. The nine months ended June 30, 2018 results include total other expense of $194,705,000 compared to $168,870,000 for the same period one year ago, a $25,835,000 or 15.3% increase. Compensation and benefits costs increased $7,693,000 primarily due to

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~~WASHINGTON FEDERAL, INC. AND SUBSIDIARIES~~

headcount increases and cost of living adjustments since last year. Information technology costs increased by $7,074,000 and other expenses increased by $8,747,000 for the nine months ended June 30, 2018 due to ongoing initiatives to enhance the Company's overall technology platform and its 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 $1,881,000 primarily due to enhanced features provided with the "Green Checking" product. Total other expense for the ~~nine~~three months ended ~~June 30,~~December 31, 2018 and ~~June 30,~~December 31, 2017 equaled ~~1.67%~~1.79% and ~~1.51%~~1.62%, respectively, of average assets.

Gain (Loss) on Real Estate Owned: Results for the three months ended ~~June 30,~~December 31, 2018 include a net gain on real estate owned of ~~$168,000, compared to a loss of $124,000 for the same period one year ago. Results for the nine months ended June 30, 2018 include a net loss on real estate owned of $64,000,~~$320,000, compared to a gain of ~~$1,069,000~~$46,000 for the same period one year ago.

Income Tax Expense: Income tax expense totaled ~~$13,100,000~~$14,367,000 for the three months ended ~~June 30,~~December 31, 2018, as compared to ~~$21,239,000 for the same period one year ago. Income tax expense totaled $37,567,000 for the nine months ended June 30, 2018, as compared to $61,819,000~~$8,965,000 for the same period one year ago. The effective tax rate for the ~~nine~~three months ended ~~June 30,~~December 31, 2018 was ~~19.78%~~21.35% compared to ~~32.67%~~14.79% for the ~~nine~~three months ended ~~June 30,~~December 31, 2017 and ~~32.27%~~20.76% for the full fiscal year ended September 30, 2017. Due to the reduction in the statutory federal corporate tax rate from 35% to 21% effective from January 1, 2018 forward, the Company has a blended federal statutory tax rate of 24.53% for its fiscal year 2018. The ~~Company's~~ effective tax rate for the ~~nine~~three months ended ~~June 30, 2018 differs from the new 2018 statutory rate~~December 31, 2017 was lower due to ~~the impact of state tax, bank-owned life insurance, low-income housing investments and tax-exempt loans, as well as~~ discrete tax ~~items. The income tax expense for the nine months ended June 30, 2018 includes a discrete tax benefit~~benefits of ~~$5,387,000 from~~$3,743,000 recognized related to the revaluation of ~~the Company's~~ deferred tax assets and liabilities ~~on account of the rate change,~~stemming from tax reform as well as tax benefits of ~~$2,472,000~~$2,205,000 related to items such as the excess deduction for stock-based ~~compensation and other adjustments. The Company estimates that its annual effective tax rate for fiscal 2018 (blended rate year) will be approximately 21%, taking into account discrete tax benefits.~~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, ~~2017~~2018. 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 ~~2017~~2018 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 ~~2017~~2018 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 its historical results or the results contemplated by the forward-looking statements contained in this report.

The Office of the Comptroller of the Currency has issued a Consent Order with respect to the Company's Bank Secrecy Act compliance. Failure to comply with the Consent Order could result in additional regulatory enforcement action.

The Bank Secrecy Act ("BSA"), the USA PATRIOT Act of 2001 (the “Patriot Act”), and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate. On February 28, 2018, pursuant to a Stipulation and Consent to the Issuance of a Consent Order (the “Stipulation”), the Office of the Comptroller of the Currency issued a Consent Order relating to the Bank, the terms of which are intended to further enhance its BSA program. Copies of the Stipulation and the Consent Order were filed with the SEC on March 1, 2018 as exhibits to the Company’s Current Report on Form 8-K. The Bank expects to continue to incur significant expenses as it strengthens its BSA program and implements additional policies and procedures associated with complying with the Consent Order. The Bank does not expect to pursue acquisitions or branch expansion until its BSA program has improved. Issuance of the Consent Order does not preclude further government action with respect to the Bank’s BSA program, including the imposition of fines, sanctions, additional expenses and compliance costs, and/or restrictions on the activities of the Bank. In addition, failure to comply with the Consent Order could subject us to additional expense and further regulatory enforcement action, including the imposition of material restrictions on the activities of the Bank or the assessment of fines or penalties, which could prevent the Bank from executing its business strategy and negatively impact its business and the price of the Company's common stock. Any further deficiency in the Bank's BSA/AML policies, procedures and systems could cause us to incur additional significant compliance costs and could subject it to fines and further regulatory actions. Moreover, failure to maintain and implement an effective BSA program could also have serious reputational consequences for the Company. Any of these results could have a material adverse effect on the Company's business, financial condition and results of operations.

~~The Company has risk of systems failures and cyber-security risk, including "hacking" and "identity theft."~~

The Company relies extensively on the successful and uninterrupted functioning of its information technology and telecommunications systems to conduct its business. This includes internally developed systems, the systems of third-party service providers, and digital and mobile technologies. Any failure, interruption or breach in security of these systems could result in failures or disruptions in its customer relationship management, general ledger, deposit, loan and other systems, and could damage its reputation, result in loss of customer business, subject it to regulatory scrutiny, or expose it to civil litigation and possible financial liability.

While the Company believes it has robust information systems and security procedures, controls and policies designed to prevent or limit the effect of the failure, interruption or security breach of its information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur, or, if they do occur, that the Company will be able to address or remediate the damage. Because the techniques used to obtain unauthorized access, disable or degrade systems change frequently and often are not recognized until launched against a target, the Company may be unable to anticipate these techniques or to implement adequate protective measures.

Cybersecurity and the continued development and enhancement of the Company's controls, processes and practices designed to protect customer information, its systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority for the Company. As cybersecurity threats continue to evolve, the Company may be required to expend additional resources to continue to enhance, modify and refine its protective measures against these evolving threats.

To date, the Company has not experienced any material losses related to cyber-attacks or other information security breaches, but there can be no assurance that it will not suffer such attacks and losses in the future. The Company’s risk and exposure to these

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~~WASHINGTON FEDERAL, INC. AND SUBSIDIARIES~~

matters remains heightened because of, among other things, the evolving nature of these threats and its plans to continue to implement internet banking and mobile banking channels, expand operations and use third-party information systems. Recent instances of attacks specifically targeting financial services businesses indicate that the risk to the Company’s systems remains significant. If the Company were to experience a cyber-attack or information security breach, it could incur substantial additional expenses, which could include remediation expenses, costs associated with customer notification and credit monitoring services, increased insurance premiums, regulatory penalties and fines and costs associated civil litigation, any of which could have a material adverse effect on the Company’s business, financial conditions or results of operations.

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 ~~June 30,~~December 31, 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)
April 1, 2018 to April 30, 2018 275,589
$ 32.44
275,589
3,804,560
May 1, 2018 to May 31, 2018 549,100
32.17
549,100
3,255,460
June 1, 2018 to June 30, 2018 399,695
33.42
399,695
2,855,765
Total 1,224,384
$ 32.64
1,224,384
2,855,765



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, 2018	1,074,875	$	28.97	1,074,875	957,723
November 1, 2018 to November 30, 2018	156,336	27.60		156,336	801,387
December 1, 2018 to December 31, 2018	508,981	26.48		508,981	292,406
Total	1,740,192	$	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 56,956,264 shares were authorized for repurchase.


~~(2)~~	~~Shares remaining available reflects~~ This does not include the ~~impact~~10,000,000 additional shares authorized by the Board 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.~~Directors on January 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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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

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 ~~June 30,~~December 31, 2018 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.



~~July 26, 2018~~January 25, 2019	/S/ BRENT J. BEARDALL
	BRENT J. BEARDALL President & Chief Executive Officer

~~July 26, 2018~~January 25, 2019	/S/ VINCENT L. BEATTY
	VINCENT L. BEATTY Executive Vice President and Chief Financial Officer

~~July 26, 2018~~January 25, 2019	/S/ CORY D. STEWART
	CORY D. STEWART Senior Vice President and Principal Accounting Officer

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	Asset Derivatives						Liability Derivatives
	June 30, 2018			September 30, 2017			June 30, 2018			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	$	10,141	Other assets	$	1,139	Other liabilities	$	10,141	Other liabilities	$	1,139
Commercial loan hedges	Other assets	3,005		Other assets	—		Other liabilities	—		Other liabilities	174
Borrowings hedges	Other assets	19,193		Other assets	—		Other liabilities	—		Other liabilities	1,693
		$	32,339		$	1,139		$	10,141		$	3,006