WAFD 10-Q Quarterly Report March 31, 2020

WASHINGTON FEDERAL INC

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended March 31, 2020


☐			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)

(Zip Code)

Registrant’s telephone number, including area code ( 206 ) 624-7930

(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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

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. ☐

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

APPLICABLE ONLY TO CORPORATE ISSUERS

The registrant had outstanding 75,706,100 shares of common stock as of May 05, 2020.

Table of Contents

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 March 31, 2020 and September 30, 2019

Consolidated Statements of Operations for the three and six months ended March 31, 2020 and March 31, 2019

Consolidated Statements of Comprehensive Income for the three and six months ended March 31, 2020 and March 31, 2019

Consolidated Statements of Shareholders' Equity for the three and six months ended March 31, 2020 and March 31, 2019

Consolidated Statements of Cash Flows for the six months ended March 31, 2020 and March 31, 2019

Notes to Interim Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Item 4.

Controls and Procedures

PART II

Item 1.

Legal Proceedings

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults Upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibits

Signatures

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)


	March 31, 2020		September 30, 2019
	(In thousands, except share data)
ASSETS
Cash and cash equivalents	$	1,495,574	$	419,158
Available-for-sale securities, at fair value	1,693,047		1,485,742
Held-to-maturity securities, at amortized cost	920,255		1,443,480
Loans receivable, net of allowance for loan losses of $ 139,501 and $ 131,534	11,974,241		11,930,575
Interest receivable	46,076		48,857
Premises and equipment, net	245,613		274,015
Real estate owned	5,463		6,781
FHLB and FRB stock	155,990		123,990
Bank owned life insurance	224,926		222,076
Intangible assets, including goodwill of $ 302,691 and $ 301,368	310,977		309,247

Other assets	303,467		210,989
	$	17,375,629	$	16,474,910
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Customer accounts
Transaction deposit accounts	$	7,664,038	$	7,083,801
Time deposit accounts	4,424,382		4,906,963
	12,088,420		11,990,764
FHLB advances	3,050,000		2,250,000
Advance payments by borrowers for taxes and insurance	41,488		57,830
Federal and state income tax liabilities, net	2,431		5,104
Accrued expenses and other liabilities	207,323		138,217
	15,389,662		14,441,915
Commitments and contingencies (see Note I)
Shareholders’ equity
Common stock, $ 1.00 par value, $ 300,000,000 shares authorized; 135,742,217 and 135,539,806 shares issued; 75,706,100 and 78,841,463 shares outstanding	135,742		135,540
Additional paid-in capital	1,675,828		1,672,417
Accumulated other comprehensive income (loss), net of taxes	6,461		15,292
Treasury stock, at cost; 60,036,117 and 56,698,343 shares	( 1,238,252 )		( 1,126,163 )
Retained earnings	1,406,188		1,335,909
	1,985,967		2,032,995
	$	17,375,629	$	16,474,910

SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


	Three Months Ended March 31,						Six Months Ended March 31,
	2020		2019		2020		2019
	(In thousands, except share data)						(In thousands, except share data)
INTEREST INCOME
Loans receivable	$	138,549	$	141,061	$	280,695	$	278,126
Mortgage-backed securities	14,341		19,343		29,953		38,535
Investment securities and cash equivalents	6,728		7,178		13,794		13,543
	159,618		167,582		324,442		330,204
INTEREST EXPENSE
Customer accounts	28,638		29,666		60,119		56,245
FHLB advances	13,368		17,846		27,026		34,737
	42,006		47,512		87,145		90,982
Net interest income	117,612		120,070		237,297		239,222
Provision (release) for credit losses	6,200		750		5,200		250
Net interest income after provision (release)	111,412		119,320		232,097		238,972

OTHER INCOME
Gain (loss) on sale of investment securities	15,028		—		15,028		( 9 )

Prepayment penalty on long-term debt	( 13,809 )		—		( 13,809 )		—
Loan fee income	3,048		667		4,852		1,637
Deposit fee income	6,099		5,886		12,359		12,129
Other income	5,875		6,257		44,187		18,062
	16,241		12,810		62,617		31,819

OTHER EXPENSE
Compensation and benefits	38,617		32,774		75,248		66,657
Occupancy	10,913		9,830		21,048		19,098
FDIC insurance premiums	2,470		1,978		4,940		4,840
Product delivery	3,897		3,545		8,164		7,566
Information technology	11,501		8,755		28,608		17,795
Other expense	12,035		11,085		24,061		23,683
	79,433		67,967		162,069		139,639
Gain (loss) on real estate owned, net	31		808		( 855 )		1,128
Income before income taxes	48,251		64,971		131,790		132,280
Income tax expense	10,301		13,873		28,137		28,240
NET INCOME	$	37,950	$	51,098	$	103,653	$	104,040

PER SHARE DATA
Basic earnings per share	$	0.49	$	0.63	$	1.33	$	1.28
Diluted earnings per share	0.49		0.63		1.33		1.28
Dividends paid on common stock per share	0.22		0.20		0.43		0.38
Basic weighted average number of shares outstanding	76,987,532		80,968,050		77,737,977		81,384,456
Diluted weighted average number of shares outstanding	77,007,118		80,990,126		77,776,304		81,415,697

SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


	Three Months Ended March 31,						Six Months Ended March 31,
	2020		2019		2020		2019
	(In thousands)						(In thousands)
Net income	$	37,950	$	51,098	$	103,653	$	104,040

Other comprehensive income (loss) net of tax:
Net unrealized gain (loss) on available-for-sale investment securities	15,086		13,585		12,937		17,082
Reclassification adjustment of net (gain) loss from sale of available-for-sale securities included in net income	( 15,028 )		—		( 15,028 )		9
Related tax benefit (expense)	( 13 )		( 3,091 )		412		( 3,889 )
	45		10,494		( 1,679 )		13,202

Net unrealized gain (loss) on borrowings cash flow hedges	( 12,428 )		( 6,150 )		( 9,313 )		( 16,650 )
Related tax benefit (expense)	2,858		1,399		2,161		3,788
	( 9,570 )		( 4,751 )		( 7,152 )		( 12,862 )

Other comprehensive income (loss) net of tax	( 9,525 )		5,743		( 8,831 )		340
Comprehensive income	$	28,425	$	56,841	$	94,822	$	104,380

SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(UNAUDITED)


(in thousands)	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
Balance at January 1, 2020	$	135,720	$	1,673,666	$	1,385,179	$	15,986	$	( 1,159,642 )	$	2,050,909

Net income	—		—		37,950		—		—		37,950
Other comprehensive income (loss)	—		—		—		( 9,525 )		—		( 9,525 )
Dividends on common stock ($ 0.22 per share)	—		—		( 16,941 )		—		—		( 16,941 )

Proceeds from stock-based awards	3		62		—		—		—		65

Stock-based compensation expense	19		2,100		—		—		—		2,119

Treasury stock acquired	—		—		—		—		( 78,610 )		( 78,610 )
Balance at March 31, 2020	$	135,742	$	1,675,828	$	1,406,188	$	6,461	$	( 1,238,252 )	$	1,985,967

(in thousands)	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
Balance at January 1, 2019	$	135,496	$	1,668,666	$	1,227,275	$	2,891	$	( 1,051,239 )	$	1,983,089

Net income	—		—		51,098		—		—		51,098
Other comprehensive income (loss)	—		—		—		5,743		—		5,743
Dividends on common stock ($ 0.20 per share)	—		—		( 16,137 )		—		—		( 16,137 )

Proceeds from stock-based awards	8		87		—		—		—		95

Stock-based compensation expense	3		1,107		—		—		—		1,110

Treasury stock acquired	—		—		—		—		( 20,718 )		( 20,718 )
Balance at March 31, 2019	$	135,507	$	1,669,860	$	1,262,236	$	8,634	$	( 1,071,957 )	$	2,004,280

(CONTINUED)

SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(UNAUDITED)


(in thousands)	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
Balance at October 1, 2019	$	135,540	$	1,672,417	$	1,335,909	$	15,292	$	( 1,126,163 )	$	2,032,995

Net income	—		—		103,653		—		—		103,653
Other comprehensive income (loss)	—		—		—		( 8,831 )		—		( 8,831 )
Dividends on common stock ($0.43 per share)	—		—		( 33,374 )		—		—		( 33,374 )

Proceeds from stock-based awards	6		109		—		—		—		115

Stock-based compensation expense	196		3,302		—		—		—		3,498

Treasury stock acquired	—		—		—		—		( 112,089 )		( 112,089 )
Balance at March 31, 2020	$	135,742	$	1,675,828	$	1,406,188	$	6,461	$	( 1,238,252 )	$	1,985,967

(in thousands)	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total
Balance at October 1, 2018	$	135,343	$	1,666,609	$	1,188,971	$	8,294	$	( 1,002,309 )	$	1,996,908

Net income	—		—		104,040		—		—		104,040
Other comprehensive income (loss)	—		—		—		340		—		340
Dividends on common stock ($0.38 per share)	—		—		( 30,775 )		—		—		( 30,775 )

Proceeds from stock-based awards	24		529		—		—		—		553

Stock-based compensation expense	101		2,761		—		—		—		2,862
Exercise of stock warrants	39		( 39 )		—		—		—		—
Treasury stock acquired	—		—		—		—		( 69,648 )		( 69,648 )
Balance at March 31, 2019	$	135,507	$	1,669,860	$	1,262,236	$	8,634	$	( 1,071,957 )	$	2,004,280

SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Six Months Ended March 31,
	2020		2019
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	103,653	$	104,040
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and accretion expense, net	464		14,924

Stock-based compensation expense	3,498		2,862
Provision (release) for loan losses	5,200		250
Loss (gain) on sale of investment securities	( 15,028 )		9

Net realized (gain) loss on sales of premises, equipment, and real estate owned	( 33,115 )		( 8,379 )
Impairment loss on premises and equipment	5,931		—
Prepayment penalty from repayment of borrowings	13,809		—
Decrease (increase) in accrued interest receivable	2,781		( 3,495 )

Decrease (increase) in federal and state income tax receivable	—		1,804
Decrease (increase) in cash surrender value of bank owned life insurance	( 2,850 )		( 2,913 )
Decrease (increase) in other assets	( 99,335 )		21,460
Increase (decrease) in federal and state income tax liabilities	( 100 )		4,080
Increase (decrease) in accrued expenses and other liabilities	66,649		( 25,707 )
Net cash provided by (used in) operating activities	51,557		108,935
CASH FLOWS FROM INVESTING ACTIVITIES
Origination of loans and principal repayments, net	( 31,859 )		( 417,355 )

FHLB & FRB stock purchased	( 201,200 )		( 309,800 )
FHLB & FRB stock redeemed	169,200		298,600
Available-for-sale securities purchased	( 159,884 )		( 290,574 )
Principal payments and maturities of available-for-sale securities	132,690		75,483
Proceeds from sales of available-for-sale securities	204,351		491

Principal payments and maturities of held-to-maturity securities	147,142		70,096

Proceeds from sales of real estate owned	2,116		5,822



Cash paid for acquisitions	( 2,777 )		—
Proceeds from sales of premises and equipment	53,790		11,622
Premises and equipment purchased and REO improvements	( 10,868 )		( 26,337 )
Net cash provided by (used in) investing activities	302,701		( 581,952 )
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in customer accounts	97,657		335,369
Proceeds from borrowings	5,030,000		7,745,000
Repayments of borrowings	( 4,243,809 )		( 7,465,000 )
Proceeds from stock-based awards	115		553
Dividends paid on common stock	( 33,374 )		( 30,775 )

Treasury stock purchased	( 112,089 )		( 69,648 )
Increase (decrease) in borrower advances related to taxes and insurance, net	( 16,342 )		( 31,578 )
Net cash provided by (used in) financing activities	722,158		483,921
Increase (decrease) in cash and cash equivalents	1,076,416		10,904
Cash, cash equivalents and restricted cash at beginning of period	419,158		268,650
Cash, cash equivalents and restricted cash at end of period	$	1,495,574	$	279,554

(CONTINUED)

SEE NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Six Months Ended March 31,
	2020		2019
	(In thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Non-cash investing activities
Real estate acquired through foreclosure	$	317	$	253
Non-cash financing activities
Stock issued upon exercise of warrants	—		1,082
Cash paid during the period for
Interest	87,948		91,921
Income taxes	21,000		15,255

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

Company and Nature of Operations - Washington Federal Bank, National Association, a federally-insured national bank dba WaFd Bank (the “Bank” or “WaFd Bank”), was founded on April 24, 1917 in Ballard, Washington and is 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. Washington Federal, Inc., a Washington corporation (the “Company”), was formed as the Bank’s holding company in November, 1994. As used throughout this document, the terms “Washington Federal” or the “Company” refer to the Company and its consolidated subsidiaries, and the term “Bank” refers to the operating subsidiary, Washington Federal Bank, National Association. The Company is headquartered in Seattle, Washington. The Bank conducts its activities through a network of 234 bank branches located in Washington, Oregon, Idaho, Utah, Arizona, Nevada, New Mexico and Texas.

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.

The information included in this Form 10-Q should be read in conjunction with the financial statements and related notes in the Company's 2019 Annual Report on Form 10-K (“2019 Annual Financial Statements”). Interim results are not necessarily indicative of results for a full year.

Summary of Significant Accounting Policies - The significant accounting policies used in preparation of the Company's consolidated financial statements are disclosed in its 2019 Annual Financial Statements. There have not been any material changes in the Company's significant accounting policies compared to those contained in its 2019 Annual Financial Statements for the year ended September 30, 2019.

Restricted Cash Balances - Based on the level of vault cash on hand, the Company was not required to maintain cash reserve balances with the Federal Reserve Bank as of March 31, 2020. As of March 31, 2020 and September 30, 2019, the Company pledged cash collateral related to derivative contracts of $ 88,700,000 and $ 31,850,000 , respectively.

Equity Securities - The Company records equity securities within Other assets in its Consolidated Statements of Financial Condition. Investments in equity securities with readily determinable fair values (marketable) are measured at fair value, with changes in the fair value recognized as a component of Other income in the Consolidated Statements of Operations. Investments in equity investments that do not have readily determinable fair values (non-marketable) are accounted for at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer, also referred to as the measurement alternative. Any adjustments to the carrying value of these investments are recorded in Other income in the Consolidated Statements of Operations.

NOTE B – New Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-02, Reference Rate Reform (Topic 848). The amendments in this ASU provide temporary, optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying GAAP to transactions affected by reference rate reform if certain criteria are met. The ASU primarily includes relief related to contract modifications and hedging relationships, as well as providing a one-time election for the sale or transfer of debt securities classified as held-to-maturity. This guidance is effective immediately and the amendments may be applied prospectively through December 31, 2022. We are currently in the process of evaluating the amendments and determining the impact to our consolidated financial statements.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments , that clarifies and improves areas of guidance related to the recently issued standards on credit losses (ASU 2016-13), hedging (ASU 2017-12), and recognition and

Table of Contents

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

measurement of financial instruments (ASU 2016-01). The amendments generally have the same effective dates as their related standards. If already adopted, the amendments of ASU 2016-01 and ASU 2016-13 are effective for fiscal years beginning after December 15, 2019 and the amendments of ASU 2017-12 are effective as of the beginning of the Company’s next annual reporting period; early adoption is permitted. Effective January 1, 2020, the Company adopted the amendments of ASU 2019-04 pertaining to ASU 2017-12 and ASU 2016-01, both of which had been previously adopted. Pursuant to the adoption of ASU 2019-04, the Company elected to reclassify mortgage-backed securities with an amortized cost of $ 374,680,000 and fair value of $ 390,669,000 from held-to-maturity to available-for-sale. The Company is continuing to evaluate the impact of ASU 2016-13 and will consider the amendments of ASU 2019-04 as part of that implementation.

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

In August 2018, the FASB issued ASU 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 date. The Company early adopted this ASU beginning October 1, 2019 and removed or modified disclosures as permitted.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) - Targeted Improvements. The ASU provides 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 adopted this ASU beginning October 1, 2019 and elected both transition options.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses . The ASU, as amended, is intended 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 and early adoption is permitted. As such, the ASU will become effective for the Company no later than October 1, 2020. 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. The Company is continuing its implementation efforts and is currently finalizing controls, processes, policies, and disclosures. Additionally, end-to-end parallel runs are being performed and the Company has engaged a third party to perform model validation procedures. The Company is in the process of evaluating the potential of early adopting this ASU. Management estimates that the allowance for credit losses (for both loans and unfunded commitments) under this ASU would be approximately $ 176 million, or 1.31 % of gross loans outstanding as of March 31, 2020. If the Company elects an early adoption of this ASU, a one-time entry to opening retained earnings (as of October 1, 2019) will be recorded to increase the allowance for credit losses and decrease retained earnings based on the final calculation as of that date. The adoption of this ASU would not have a material impact on the Company’s available-for-sale or held-to-maturity securities as those portfolios consist primarily of U.S. residential agency mortgage-backed securities that management deems to have an immaterial risk of loss.

In February 2016, the FASB issued ASU 2016-02, Leases. The ASU, as amended, requires 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 and introduces new disclosure requirements for leasing arrangements. Accounting by lessors is largely unchanged. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted this ASU beginning October 1, 2019 utilizing the transition method allowed under ASU 2018-11 and did not restate comparative periods. The Company elected the package of practical expedients permitted under the transition guidance, which allowed us to carry forward our historical lease classifications and our assessment on whether a contract is or contains a lease. We also elected to keep leases with an initial term of 12 months or less off the balance sheet. The adoption of this ASU resulted in an increase in other assets and an increase in other liabilities of $ 29,013,000 and $ 29,013,000 , respectively. The Company recognized no cumulative effect adjustment to the beginning balance of retained earnings upon adoption.

NOTE C – Dividends and Share Repurchases

On February 21, 2020, the Company paid a regular dividend on common stock of $ 0.22 per share, which represented the 148 ^th consecutive quarterly cash dividend. Dividends per share were $ 0.22 and $ 0.20 for the quarters ended March 31, 2020 and 2019, respectively. On April 28, 2020, the Company declared a regular dividend on common stock of $ 0.22 per share, which represents its 149 ^th consecutive quarterly cash dividend. This dividend will be paid on May 22, 2020 to common shareholders of record on May 8, 2020.

For the three months ended March 31, 2020, the Company repurchased 2,423,613 shares at an average price of $ 32.43 . As of March 31, 2020, there are 4,628,987 remaining shares authorized to be repurchased under the current Board approved share repurchase program.

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NOTE D – Loans Receivable

The following table is a summary of loans receivable.


	March 31, 2020						September 30, 2019
	(In thousands)						(In thousands)
Gross loans by category
Single-family residential	$	5,582,244	41.5	%	$	5,835,194	43.8	%
Construction	2,204,283		16.4		2,038,052		15.3
Construction - custom	547,731		4.1		540,741		4.1
Land - acquisition & development	197,010		1.5		204,107		1.5
Land - consumer lot loans	96,579		0.7		99,694		0.7
Multi-family	1,467,231		10.9		1,422,674		10.7
Commercial real estate	1,717,535		12.8		1,631,170		12.3
Commercial & industrial	1,371,128		10.2		1,268,695		9.5
HELOC	145,761		1.1		142,178		1.1
Consumer	105,147		0.8		129,883		1.0
Total gross loans	13,434,649		100	%	13,312,388		100	%
Less:
Allowance for loan losses	139,501				131,534
Loans in process	1,289,812				1,201,341
Net deferred fees, costs and discounts	31,095				48,938
Total loan contra accounts	1,460,408				1,381,813
Net loans	$	11,974,241			$	11,930,575

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


	March 31, 2020								September 30, 2019
	(In thousands, except ratio data)
Non-accrual loans:
Single-family residential	$	22,859		70.1	%	$	25,271		74.9	%
Construction	3,353			10.3		—			—

Land - acquisition & development	82			0.3		169			0.5
Land - consumer lot loans	408			1.2		246			0.7

Commercial real estate	4,374			13.4		5,835			17.3
Commercial & industrial	470			1.4		1,292			3.8
HELOC	1,064			3.3		907			2.7
Consumer	—			0.0		11			0.0
Total non-accrual loans	$	32,610		100	%	$	33,731		100	%
% of total net loans	0.27		%			0.28		%

The Company recognized interest income on non-accrual loans of approximately $ 1,189,000 in the six months ended March 31, 2020. Had these loans been on accrual status and performed according to their original contract terms, the Company would have recognized interest income of approximately $ 708,000 for the six months ended March 31, 2020. Recognized interest income for the six months ended March 31, 2020 was higher than what otherwise would have been recognized in the period due

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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.


March 31, 2020	Loans Receivable		Days Delinquent Based on $ Amount of Loans												% based on $
Type of Loan	Net of Loans In Process		Current		30		60		90		Total Delinquent
	(In thousands, except ratio data)
Single-family residential	$	5,582,243	$	5,556,051	$	5,154	$	3,857	$	17,181	$	26,192	0.47	%
Construction	1,235,731		1,232,378		—		—		3,353		3,353		0.27
Construction - custom	270,880		270,880		—		—		—		—		—
Land - acquisition & development	152,623		152,229		394		—		—		394		0.26
Land - consumer lot loans	96,580		95,796		141		270		373		784		0.81
Multi-family	1,467,208		1,466,852		356		—		—		356		0.02
Commercial real estate	1,717,535		1,712,893		580		414		3,648		4,642		0.27
Commercial & industrial	1,371,128		1,368,840		2,215		—		73		2,288		0.17
HELOC	145,761		144,709		151		37		864		1,052		0.72
Consumer	105,148		104,564		276		86		222		584		0.56
Total Loans	$	12,144,837	$	12,105,192	$	9,267	$	4,664	$	25,714	$	39,645	0.33	%
Delinquency %			99.67 %		0.08 %		0.04 %		0.21 %		0.33 %


September 30, 2019	Loans Receivable		Days Delinquent Based on $ Amount of Loans												% based on $
Type of Loan	Net of Loans In Process		Current		30		60		90		Total Delinquent
	(In thousands, except ratio data)
Single-family residential	$	5,835,186	$	5,809,239	$	3,672	$	3,211	$	19,064	$	25,947	0.44	%
Construction	1,164,889		1,164,889		—		—		—		—		—
Construction - custom	255,505		255,505		—		—		—		—		—
Land - acquisition & development	161,194		161,194		—		—		—		—		—
Land - consumer lot loans	99,694		98,916		112		619		47		778		0.78
Multi-family	1,422,652		1,422,652		—		—		—		—		—
Commercial real estate	1,631,171		1,625,509		1,614		285		3,763		5,662		0.35
Commercial & industrial	1,268,695		1,267,828		—		—		867		867		0.07
HELOC	142,178		140,718		580		183		697		1,460		1.03
Consumer	129,883		129,227		295		117		244		656		0.51
Total Loans	$	12,111,047	$	12,075,677	$	6,273	$	4,415	$	24,682	$	35,370	0.29	%
Delinquency %			99.71 %		0.05 %		0.04 %		0.20 %		0.29 %

There are no loans greater than 90 days delinquent and still accruing interest as of either date.

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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 March 31, 2020, 97.2 % of the Company's $ 104,019,000 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 March 31, 2020, single-family residential loans comprised 93.3 % 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.

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NOTE E – Allowance for Losses on Loans

The following tables summarize the activity in the allowance for loan losses.


Three Months Ended March 31, 2020	Beginning Allowance		Charge-offs		Recoveries		Provision & Transfers		Ending Allowance
	(In thousands)
Single-family residential	$	30,700	$	—	$	192	$	( 1,612 )	$	29,280
Construction	32,292		—		5		1,986		34,283
Construction - custom	1,399		—		—		181		1,580
Land - acquisition & development	8,746		—		126		( 139 )		8,733
Land - consumer lot loans	2,090		( 77 )		476		( 383 )		2,106
Multi-family	7,404		—		—		1,163		8,567
Commercial real estate	13,035		( 13 )		1,020		978		15,020
Commercial & industrial	33,540		( 129 )		57		2,967		36,435
HELOC	1,104		—		1		177		1,282
Consumer	2,203		( 230 )		360		( 118 )		2,215
	$	132,513	$	( 449 )	$	2,237	$	5,200	$	139,501


Three Months Ended March 31, 2019	Beginning Allowance		Charge-offs		Recoveries		Provision & Transfers		Ending Allowance
	(In thousands)
Single-family residential	$	31,484	$	( 150 )	$	310	$	( 168 )	$	31,476
Construction	31,463		—		—		1,933		33,396
Construction - custom	1,926		—		—		50		1,976
Land - acquisition & development	9,156		—		1,300		( 722 )		9,734
Land - consumer lot loans	2,144		( 48 )		—		( 20 )		2,076
Multi-family	7,884		—		—		( 490 )		7,394
Commercial real estate	12,711		—		244		( 507 )		12,448
Commercial & industrial	30,279		( 285 )		24		556		30,574
HELOC	1,064		( 200 )		43		175		1,082
Consumer	3,054		( 332 )		265		( 57 )		2,930
	$	131,165	$	( 1,015 )	$	2,186	$	750	$	133,086

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Six Months Ended March 31, 2020	Beginning Allowance		Charge-offs		Recoveries		Provision & Transfers		Ending Allowance
	(In thousands)
Single-family residential	$	30,988	$	( 15 )	$	453	$	( 2,146 )	$	29,280
Construction	32,304		—		59		1,920		34,283
Construction - custom	1,369		—		—		211		1,580
Land - acquisition & development	9,155		( 11 )		1,586		( 1,997 )		8,733
Land - consumer lot loans	2,143		( 147 )		486		( 376 )		2,106
Multi-family	7,391		—		498		678		8,567
Commercial real estate	13,170		( 111 )		1,388		573		15,020
Commercial & industrial	31,450		( 179 )		201		4,963		36,435
HELOC	1,103		—		94		85		1,282
Consumer	2,461		( 604 )		669		( 311 )		2,215
	$	131,534	$	( 1,067 )	$	5,434	$	3,600	$	139,501


Six Months Ended March 31, 2019	Beginning Allowance		Charge-offs		Recoveries		Provision & Transfers		Ending Allowance
	(In thousands)
Single-family residential	$	33,033	$	( 175 )	$	539	$	( 1,921 )	$	31,476
Construction	31,317		—		—		2,079		33,396
Construction - custom	1,842		—		—		134		1,976
Land - acquisition & development	7,978		—		3,082		( 1,326 )		9,734
Land - consumer lot loans	2,164		( 120 )		265		( 233 )		2,076
Multi-family	8,329		—		—		( 935 )		7,394
Commercial real estate	11,852		( 339 )		770		165		12,448
Commercial & industrial	28,702		( 464 )		58		2,278		30,574
HELOC	781		( 1,086 )		44		1,343		1,082
Consumer	3,259		( 472 )		477		( 334 )		2,930
	$	129,257	$	( 2,656 )	$	5,235	$	1,250	$	133,086

Primarily due to the economic distress caused by the COVID-19 pandemic, the Company recorded a $ 6,200,000 provision for credit losses for the three months ended March 31, 2020, compared with a $ 750,000 provision for the three months ended March 31, 2019. The relatively significant provision in the current year quarter primarily relates to estimated impacts to the energy, hospitality, restaurant and senior living industries. A provision for credit losses of $ 5,200,000 and $ 250,000 was recorded during the six months ended March 31, 2020 and March 31, 2019, respectively. Reserving for new loan originations has been largely offset by recoveries of previously charged-off loans. Recoveries, net of charge-offs, totaled $ 1,788,000 for the three months ended March 31, 2020, compared to net recoveries of $ 1,171,000 during the three months ended March 31, 2019. Recoveries, net of charge-offs, totaled $ 4,367,000 for the six months ended March 31, 2020, compared to net recoveries of $ 2,579,000 during the six months ended March 31, 2019.

Non-performing assets were $ 41,387,000 , or 0.24 % of total assets, at March 31, 2020, compared to $ 43,826,000 , or 0.27 % of total assets, at September 30, 2019. Non-accrual loans were $ 32,610,000 at March 31, 2020, compared to $ 33,731,000 at September 30, 2019. Delinquencies, as a percent of total loans, were 0.33 % at March 31, 2020, compared to 0.29 % at September 30, 2019.

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


March 31, 2020	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	$	29,280	$	5,566,786	0.5	%	$	—	$	19,606	0.0	%
Construction	34,283		1,232,378		2.8		—		3,353		—
Construction - custom	1,580		270,880		0.6		—		—		—
Land - acquisition & development	8,732		152,541		5.7		1		82		1.2
Land - consumer lot loans	2,106		92,881		2.3		—		372		0.0
Multi-family	8,566		1,466,892		0.6		1		316		0.3
Commercial real estate	15,016		1,708,240		0.9		4		9,295		—
Commercial & industrial	36,432		1,370,838		2.7		3		855		0.4
HELOC	1,282		144,119		0.9		—		876		0.0
Consumer	2,215		104,527		2.1		—		—		0.0
	$	139,492	$	12,110,082	1.2	%	$	9	$	34,755	—	%


September 30, 2019	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	$	30,988	$	5,822,200	0.5	%	$	—	$	17,978	0.0	%
Construction	32,304		1,164,889		2.8		—		—		—
Construction - custom	1,369		255,505		0.5		—		—		—
Land - acquisition & development	9,135		160,964		5.7		20		230		8.7
Land - consumer lot loans	2,143		95,574		2.2		—		375		0.0
Multi-family	7,387		1,422,266		0.5		4		385		1.0
Commercial real estate	12,847		1,618,406		0.8		323		12,765		2.5
Commercial & industrial	31,358		1,266,913		2.5		92		1,805		5.1
HELOC	1,103		140,378		0.8		—		837		0.0
Consumer	2,461		129,527		1.9		—		50		0.0
	$	131,095	$	12,076,622	1.1	%	$	439	$	34,425	1.3	%

As of March 31, 2020, $ 139,492,000 of the allowance was calculated under the Company's general allowance methodology and the remaining $ 9,000 was specific reserves on loans deemed to be individually impaired. As of September 30, 2019, $ 131,095,000 of the allowance was calculated under the Company's general allowance methodology and the remaining $ 439,000 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

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loan by loan basis to determine the relative risk inherent in specific borrowers or loans. Based on that risk rating, the loans are assigned a grade and classified as follows:

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

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

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

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

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

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The following tables provide information on loans based on risk rating categories as defined above.


March 31, 2020	Internally Assigned Grade
	Pass			Special mention			Substandard			Doubtful			Loss			Total Gross Loans
	(In thousands, except ratio data)
Loan type
Single-family residential	$	5,557,959		$	—		$	24,285		$	—		$	—		$	5,582,244
Construction	2,200,930			—			3,353			—			—			2,204,283
Construction - custom	547,731			—			—			—			—			547,731
Land - acquisition & development	194,587			—			2,423			—			—			197,010
Land - consumer lot loans	95,901			—			678			—			—			96,579
Multi-family	1,462,588			4,643			—			—			—			1,467,231
Commercial real estate	1,694,801			2,718			20,016			—			—			1,717,535
Commercial & industrial	1,302,665			1,621			66,828			14			—			1,371,128
HELOC	144,697			—			1,064			—			—			145,761
Consumer	105,147			—			—			—			—			105,147
Total gross loans	$	13,307,006		$	8,982		$	118,647		$	14		$	—		$	13,434,649

Total grade as a % of total gross loans	99.05		%	0.07		%	0.88		%	0.00		%	—		%


September 30, 2019	Internally Assigned Grade
	Pass			Special mention			Substandard			Doubtful			Loss			Total Gross Loans
	(In thousands, except ratio data)
Loan type
Single-family residential	$	5,808,444		$	—		$	26,750		$	—		$	—		$	5,835,194
Construction	2,038,052			—			—			—			—			2,038,052
Construction - custom	540,741			—			—			—			—			540,741
Land - acquisition & development	200,283			—			3,824			—			—			204,107
Land - consumer lot loans	98,828			—			866			—			—			99,694
Multi-family	1,418,837			—			3,837			—			—			1,422,674
Commercial real estate	1,602,634			2,754			25,782			—			—			1,631,170
Commercial & industrial	1,229,891			18,125			20,679			—			—			1,268,695
HELOC	141,271			—			907			—			—			142,178
Consumer	129,872			—			11			—			—			129,883
Total gross loans	$	13,208,853		$	20,879		$	82,656		$	—		$	—		$	13,312,388

Total grade as a % of total gross loans	99.22		%	0.16		%	0.62		%	—		%	—		%

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(UNAUDITED)

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


March 31, 2020	Performing Loans						Non-Performing Loans
	Amount		% of Total Gross Loans		Amount		% of Total Gross Loans
	(In thousands, except ratio data)
Single-family residential	$	5,559,385	99.6	%	$	22,859	0.4	%
Construction	2,200,930		99.8		3,353		0.2
Construction - custom	547,731		100.0		—		—
Land - acquisition & development	196,928		100.0		82		0.0
Land - consumer lot loans	96,171		99.6		408		0.4
Multi-family	1,467,231		100.0		—		—
Commercial real estate	1,713,161		99.7		4,374		0.3
Commercial & industrial	1,370,658		100.0		470		0.0
HELOC	144,697		99.3		1,064		0.7
Consumer	105,147		100.0		—		0.0
	$	13,402,039	99.8	%	$	32,610	0.2	%


September 30, 2019	Performing Loans						Non-Performing Loans
	Amount		% of Total Gross Loans		Amount		% of Total Gross Loans
	(In thousands, except ratio data)
Single-family residential	$	5,809,923	99.6	%	$	25,271	0.4	%
Construction	2,038,052		100.0		—		—
Construction - custom	540,741		100.0		—		—
Land - acquisition & development	203,938		99.9		169		0.1
Land - consumer lot loans	99,448		99.8		246		0.2
Multi-family	1,422,674		100.0		—		—
Commercial real estate	1,625,335		99.6		5,835		0.4
Commercial & industrial	1,267,403		99.9		1,292		0.1
HELOC	141,271		99.4		907		0.6
Consumer	129,872		100.0		11		0.0
	$	13,278,657	99.7	%	$	33,731	0.3	%

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(UNAUDITED)

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


March 31, 2020	Recorded Investment		Unpaid Principal Balance		Related Allowance			Average Recorded Investment (Year-To-Date)
	(In thousands)
Impaired loans with no related allowance recorded:
Single-family residential	$	16,523	$	17,440	$	—		$	17,002
Construction	3,434		3,434		—			1,145

Land - acquisition & development	—		—		—			26
Land - consumer lot loans	280		350		—			298

Commercial real estate	7,412		11,753		—			7,376
Commercial & industrial	458		464		—			670
HELOC	799		799		—			668
Consumer	—		—		—			17
	28,906		34,240		—			27,202
Impaired loans with an allowance recorded:
Single-family residential	97,024		99,317		1,097			103,743


Land - acquisition & development	82		149		1			86
Land - consumer lot loans	3,418		3,583		—			3,510
Multi-family	316		316		1			360
Commercial real estate	1,883		1,883		4			3,096
Commercial & industrial	397		514		3			411
HELOC	843		859		—			911
Consumer	56		56		—			58
	104,019		106,677		1,106		(1)	112,175
Total impaired loans:
Single-family residential	113,547		116,757		1,097			120,745
Construction	3,434		3,434		—			1,145

Land - acquisition & development	82		149		1			112
Land - consumer lot loans	3,698		3,933		—			3,808
Multi-family	316		316		1			360
Commercial real estate	9,295		13,636		4			10,472
Commercial & industrial	855		978		3			1,081
HELOC	1,642		1,658		—			1,579
Consumer	56		56		—			75
	$	132,925	$	140,917	$	1,106	(1)	$	139,377

(1) Includes $ 9,000 of specific reserves and $ 1,097,000 included in the general reserves.

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(UNAUDITED)


September 30, 2019	Recorded Investment		Unpaid Principal Balance		Related Allowance			Average Recorded Investment (Year-To-Date)
	(In thousands)
Impaired loans with no related allowance recorded:
Single-family residential	$	17,979	$	19,252	$	—		$	16,685
Construction	—		—		—			1,172
Construction - custom	—		—		—			251
Land - acquisition & development	78		143		—			290
Land - consumer lot loans	344		848		—			287
Multi-family	—		—		—			286
Commercial real estate	7,467		11,881		—			8,890
Commercial & industrial	1,114		5,312		—			7,168
HELOC	837		931		—			597
Consumer	50		119		—			23
	27,869		38,486		—			35,649
Impaired loans with an allowance recorded:
Single-family residential	112,042		114,609		2,208			125,976


Land - acquisition & development	91		152		—			99
Land - consumer lot loans	3,556		3,695		20			4,324
Multi-family	385		385		4			418
Commercial real estate	4,168		5,298		323			5,160
Commercial & industrial	426		691		92			2,535
HELOC	949		963		—			961
Consumer	60		282		—			65
	121,677		126,075		2,647		(1)	139,538
Total impaired loans:
Single-family residential	130,021		133,861		2,208			142,661
Construction	—		—		—			1,172
Construction - custom	—		—		—			251
Land - acquisition & development	169		295		—			389
Land - consumer lot loans	3,900		4,543		20			4,611
Multi-family	385		385		4			704
Commercial real estate	11,635		17,179		323			14,050
Commercial & industrial	1,540		6,003		92			9,703
HELOC	1,786		1,894		—			1,558
Consumer	110		401		—			88
	$	149,546	$	164,561	$	2,647	(1)	$	175,187

(1) Includes $ 439,000 of specific reserves and $ 2,208,000 included in the general reserves.

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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE F – Fair Value Measurements

FASB ASC 820, Fair Value Measurement ("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 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, mortgage pool hedges and 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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(UNAUDITED)

The following tables present the balance of assets and liabilities measured at fair value on a recurring basis.


	March 31, 2020
	Level 1		Level 2		Level 3		Total
	(In thousands)
Financial Assets
Available-for-sale securities:

U.S. government and agency securities	$	—	$	338,361	$	—	$	338,361
Municipal bonds	—		21,997		—		21,997

Corporate debt securities	—		259,524		—		259,524
Mortgage-backed securities
Agency pass-through certificates	—		1,073,165		—		1,073,165

Total available-for-sale securities	—		1,693,047		—		1,693,047
Client swap program hedges	—		43,157		—		43,157



Total financial assets	$	—	$	1,736,204	$	—	$	1,736,204

Financial Liabilities
Client swap program hedges	$	—	$	43,157	$	—	$	43,157
Commercial loan fair value hedges	—		8,703		—		8,703
Mortgage loan fair value hedges	—		13,961		—		13,961
Borrowings cash flow hedges	—		17,189		—		17,189
Total financial liabilities	$	—	$	83,010	$	—	$	83,010


	September 30, 2019
	Level 1		Level 2		Level 3		Total
	(In thousands)
Financial Assets
Available-for-sale securities:

U.S. government and agency securities	$	—	$	270,778	$	—	$	270,778
Municipal bonds	—		22,642		—		22,642

Corporate debt securities	—		209,763		—		209,763
Mortgage-backed securities
Agency pass-through certificates	—		982,559		—		982,559

Total available-for-sale securities	—		1,485,742		—		1,485,742
Client swap program hedges	—		20,381		—		20,381

Mortgage loan fair value hedges	—		1,608		—		1,608

Total financial assets	$	—	$	1,507,731	$	—	$	1,507,731

Financial Liabilities
Client swap program hedges	$	—	$	20,381	$	—	$	20,381
Commercial loan fair value hedges	—		4,288		—		4,288

Borrowings cash flow hedges	—		7,877		—		7,877
Total financial liabilities	$	—	$	32,546	$	—	$	32,546

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(UNAUDITED)

Measured on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis after initial recognition such as loans measured for impairment and real estate owned ("REO"). 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 or REO property.

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 March 31, 2020 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 March 31, 2020 and March 31, 2019, and the total gains (losses) resulting from those fair value adjustments during the respective periods. The estimated fair value measurements are shown gross of estimated selling costs.


	March 31, 2020												Three Months Ended March 31, 2020	Six Months Ended March 31, 2020
	Level 1		Level 2		Level 3		Total		Total Gains (Losses)
	(In thousands)												(In thousands)
Impaired loans (1)	$	—	$	—	$	810	$	810	$	( 246 )	$	( 545 )
Real estate owned (2)	—		—		1,675		1,675		145		143
Balance at end of period	$	—	$	—	$	2,485	$	2,485	$	( 101 )	$	( 402 )

(1) The gains (losses) represent re-measurements of collateral-dependent loans.

(2) The gains (losses) represent re-measurements of REO.


	March 31, 2019												Three Months Ended March 31, 2019	Six Months Ended March 31, 2019
	Level 1		Level 2		Level 3		Total		Total Gains (Losses)
	(In thousands)												(In thousands)
Impaired loans (1)	$	—	$	—	$	3,316	$	3,316	$	( 511 )	$	( 1,237 )
Real estate owned (2)	—		—		2,550		2,550		431		399
Balance at end of period	$	—	$	—	$	5,866	$	5,866	$	( 80 )	$	( 838 )

(1) The gains (losses) represent re-measurements of collateral-dependent loans.

(2) The gains (losses) represent re-measurements of REO.

Fair Values of Financial Instruments

FASB ASC 825, Financial Instruments ("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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(UNAUDITED)


		March 31, 2020						September 30, 2019
	Level in Fair Value Hierarchy	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
		($ in thousands)
Financial assets
Cash and cash equivalents	1	$	1,495,574	$	1,495,574	$	419,158	$	419,158
Available-for-sale securities

U.S. government and agency securities	2	338,361		338,361		270,778		270,778
Municipal bonds	2	21,997		21,997		22,642		22,642

Corporate debt securities	2	259,524		259,524		209,763		209,763
Mortgage-backed securities
Agency pass-through certificates	2	1,073,165		1,073,165		982,559		982,559

Total available-for-sale securities		1,693,047		1,693,047		1,485,742		1,485,742
Held-to-maturity securities





Mortgage-backed securities
Agency pass-through certificates	2	913,243		941,181		1,428,480		1,448,088
Commercial MBS	2	7,012		7,012		15,000		15,007
Total held-to-maturity securities		920,255		948,193		1,443,480		1,463,095

Loans receivable	3	11,974,241		12,328,962		11,930,575		12,617,600

FHLB and FRB stock	2	155,990		155,990		123,990		123,990
Other assets - client swap program hedges	2	43,157		43,157		20,381		20,381

Other assets - mortgage loan fair value hedges	2	—		—		1,608		1,608


Financial liabilities
Time deposits	2	4,424,382		4,451,266		4,906,963		4,937,847
FHLB advances	2	3,050,000		3,023,003		2,250,000		2,282,887
Other liabilities - client swap program hedges	2	43,157		43,157		20,381		20,381
Other liabilities - mortgage loan fair value hedges	2	13,961		13,961		—		—
Other liabilities - commercial loan fair value hedges	2	8,703		8,703		4,288		4,288
Other liabilities - borrowings cash flow hedges	2	17,189		17,189		7,877		7,877

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 – 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 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 a discount 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 impaired loans is also based on recent appraisals or estimated cash flows discounted using rates

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NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

commensurate with risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market information and specific borrower information.

FHLB and FRB stock – The fair value is based upon the par value of the stock that equates to its carrying value.

Time deposits – The fair value of time deposits is estimated by discounting the estimated future cash flows using rates 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 swaps – 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 Company also uses interest rate swaps for various fair value hedges and cash flow hedges. The fair value of these interest rate swaps is estimated by a third party pricing service using a discounted cash flow technique.

The following tables provide details about the amortized cost and fair value of available-for-sale and held-to-maturity securities.


	March 31, 2020
	Amortized Cost		Gross Unrealized						Fair Value		Yield
					Gains		Losses
	($ in thousands)
Available-for-sale securities
U.S. government and agency securities due


5 to 10 years	$	61,083	$	286	$	( 2,069 )	$	59,300	1.71	%
Over 10 years	286,932		—		( 7,871 )		279,061		1.89




Corporate debt securities due
Within 1 year	43,973		7		( 4 )		43,976		2.34
1 to 5 years	70,000		69		( 3,222 )		66,847		2.81
5 to 10 years	150,205		1,982		( 3,486 )		148,701		2.85

Municipal bonds due

1 to 5 years	1,445		20		—		1,465		1.96

Over 10 years	20,293		239		—		20,532		6.45
Mortgage-backed securities
Agency pass-through certificates	1,033,536		41,612		( 1,983 )		1,073,165		3.10

	1,667,467		44,215		( 18,635 )		1,693,047		2.83
Held-to-maturity securities







Mortgage-backed securities
Agency pass-through certificates	913,243		27,938		—		941,181		3.17
Commercial MBS	7,012		—		—		7,012		1.67
	920,255		27,938		—		948,193		3.16
	$	2,587,722	$	72,153	$	( 18,635 )	$	2,641,240	2.95	%

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(UNAUDITED)


	September 30, 2019
	Amortized Cost		Gross Unrealized							Fair Value		Yield
					Gains		Losses
	($ in thousands)
Available-for-sale securities
U.S. government and agency securities due


5 to 10 years	$	65,287	$	39	$	( 629 )		$	64,697	2.43	%
Over 10 years	207,067		1		( 987 )			206,081		3.02




Corporate debt securities due
Within 1 year	43,903		411		—			44,314		3.65
1 to 5 years	70,000		689		( 50 )			70,639		3.29
5 to 10 years	92,931		1,879		—			94,810		3.27

Municipal bonds due

1 to 5 years	1,430		14		—			1,444		1.94

Over 10 years	20,303		895		—			21,198		6.45
Mortgage-backed securities
Agency pass-through certificates	957,150		26,533		( 1,124 )			982,559		3.29

	1,458,071		30,461		( 2,790 )			1,485,742		3.27
Held-to-maturity securities







Mortgage-backed securities
Agency pass-through certificates	1,428,480		19,945		( 337 )			1,448,088		3.15
Commercial MBS	15,000		7		—			15,007		2.89
	1,443,480		19,952		( 337 )			1,463,095		3.15
	$	2,901,551	$	50,413	$	( 3,127 )		$	2,948,837	3.21	%

During the quarter ended March 31, 2020, as permitted in conjunction with the adoption of ASU 2019-04, the Company reclassified $ 374,680,000 of prepayable debt securities from held-to-maturity to available-for-sale. For available-for-sale investment securities, there were purchases of $ 159,884,000 during the six months ended March 31, 2020 and purchases of $ 290,574,000 during the six months ended March 31, 2019. There were sales totaling $ 204,351,000 of available-for-sale investment securities during the six months ended March 31, 2020 and sales of $ 491,000 during the six months ended March 31, 2019. For held-to-maturity investment securities, there were no purchases during the six months ended March 31, 2020 and no purchases during the six months ended March 31, 2019. 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 gross unrealized losses and fair value of securities as of March 31, 2020 and September 30, 2019, 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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(UNAUDITED)


March 31, 2020	Less than 12 months						12 months or more						Total
	Unrealized Gross Losses		Fair Value		Unrealized Gross Losses		Fair Value		Unrealized Gross Losses		Fair Value
	(In thousands)
Corporate debt securities	$	( 1,620 )	$	51,306	$	( 5,092 )	$	75,094	$	( 6,712 )	126,400

U.S. government and agency securities	$	( 5,699 )	$	151,823	$	( 4,241 )	$	165,987	$	( 9,940 )	$	317,810

Mortgage-backed securities	( 82 )		18,751		( 1,901 )		184,405		( 1,983 )		203,156
	$	( 7,401 )	$	221,880	$	( 11,234 )	$	425,486	$	( 18,635 )	$	647,366


September 30, 2019	Less than 12 months						12 months or more						Total
	Unrealized Gross Losses		Fair Value		Unrealized Gross Losses		Fair Value		Unrealized Gross Losses		Fair Value
	(In thousands)
Corporate debt securities	$	—	$	—	$	( 50 )	$	24,950	$	( 50 )	$	24,950

U.S. government and agency securities	( 656 )		152,715		( 960 )		77,391		( 1,616 )		230,106

Mortgage-backed securities	( 148 )		87,895		( 1,313 )		270,802		( 1,461 )		358,697
	$	( 804 )	$	240,610	$	( 2,323 )	$	373,143	$	( 3,127 )	$	613,753

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE G – Derivatives and Hedging Activities

The following tables present the fair value, notional amount and balance sheet classification of derivative assets and liabilities at March 31, 2020 and September 30, 2019.


March 31, 2020	Derivative 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 hedges	Other assets	$	471,522	$	43,157	Other liabilities	$	471,522	$	43,157
Commercial loan fair value hedges	Other assets	—		—		Other liabilities	93,316		8,703
Mortgage loan fair value hedges	Other assets	—		—		Other liabilities	500,000		13,961
Borrowings cash flow hedges	Other assets	—		—		Other liabilities	1,600,000		17,189
		$	471,522	$	43,157		$	2,664,838	$	83,010


September 30, 2019	Derivative 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 hedges	Other assets	$	425,607	$	20,381	Other liabilities	$	425,607	$	20,381
Commercial loan fair value hedges	Other assets	—		—		Other liabilities	95,645		4,288
Mortgage loan fair value hedges	Other assets	200,000		1,608		Other liabilities	—		—
Borrowings cash flow hedges	Other assets	—		—		Other liabilities	700,000		7,877
		$	625,607	$	21,989		$	1,221,252	$	32,546

The Company enters into interest rate swaps to hedge interest rate risk. These arrangements include hedges of individual fixed rate commercial loans and also hedges of a specified portion of pools of prepayable fixed rate mortgage loans under the "last of layer" method. These relationships qualify as fair value hedges under FASB ASC 815, Derivatives and Hedging ("ASC 815"), which provides for offsetting of the recognition of gains and losses of the respective interest rate swap and the hedged items. Gains and losses on 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 tables present the impact of fair value hedge accounting on the carrying value of the hedged items at March 31, 2020 and September 30, 2019.


March 31, 2020
Balance sheet line item in which hedged item is recorded	Carrying value of hedged items		Cumulative gain (loss) fair value hedge adjustment included in carrying amount of hedged items
	(In thousands)
Loans receivable (1) (2)	$	3,140,304	$	22,832
	$	3,140,304	$	22,832

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

amortized cost basis of the closed loan portfolios used in the hedging relationships was $ 3,037,918,000 , the cumulative basis adjustment associated with the hedging relationships was $ 13,950,000 , and the amount of the designated hedged items was $ 500,000,000 .

(2) Includes the amortized cost basis of commercial loans designated in fair value hedging relationships. At March 31, 2020, the amortized cost basis of the hedged commercial loans was $ 102,386,000 and the cumulative basis adjustment associated with the hedging relationships was $ 8,882,000 .


September 30, 2019
Balance sheet line item in which hedged item is recorded	Carrying value of hedged items		Cumulative gain (loss) fair value hedge adjustment included in carrying amount of hedged items
	(In thousands)
Loans receivable (1) (2)	$	1,612,208	$	2,680
	$	1,612,208	$	2,680

(1) Includes the amortized cost basis of the closed mortgage loan portfolios used to designate the hedging relationships in which the hedged items are the last layer expected to be remaining at the end of the hedging relationships. At September 30, 2019, the amortized cost basis of the closed loan portfolios used in the hedging relationships was $ 1,520,647,000 , the cumulative basis adjustment associated with the hedging relationships was $( 1,608,000 ), and the amount of the designated hedged items was $ 200,000,000 .

(2) Includes the amortized cost basis of commercial loans designated in fair value hedging relationships. At September 30, 2019, the amortized cost basis of the hedged commercial loans was $ 91,561,000 and the cumulative basis adjustment associated with the hedging relationships was $ 4,288,000 .

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 income statement line item as the hedged cash flows. As of March 31, 2020, the maturities for hedges of adjustable rate borrowings ranged from less than one to ten years , with the weighted average being 7.2 years.

The following tables present the gain (loss) recognized in AOCI on derivative instruments related to cash flow hedges on borrowings for the periods presented.


(In thousands)	Three Months Ended March 31,
Amount of gain/(loss) recognized in AOCI	2020		2019
Interest rate contracts:
Pay fixed/receive floating swaps on borrowings cash flow hedges	$	( 12,428 )	$	( 6,150 )
Total pre-tax gain/(loss) recognized in AOCI	$	( 12,428 )	$	( 6,150 )

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


(In thousands)	Six Months Ended March 31,
Amount of gain/(loss) recognized in AOCI	2020		2019
Interest rate contracts:
Pay fixed/receive floating swaps on borrowings cash flow hedges	$	( 9,313 )	$	( 16,650 )
Total pre-tax gain/(loss) recognized in AOCI	$	( 9,313 )	$	( 16,650 )

The following tables present the gain (loss) on derivative instruments in fair value and cash flow accounting hedging relationships under ASC 815 for the periods presented.


	Three Months Ended March 31, 2020						Three Months Ended March 31, 2019
	Interest income on loans receivable		Interest expense on FHLB advances		Interest income on loans receivable		Interest expense on FHLB advances
	(In thousands)						(In thousands)
Interest income/(expense), including the effects of fair value and cash flow hedges	$	138,549	$	( 13,368 )	$	141,061	$	( 17,846 )

Gain/(loss) on fair value hedging relationships:
Interest rate contracts
Amounts related to interest settlements on derivatives	$	( 112 )			$	58
Recognized on derivatives	( 24,676 )				( 1,600 )
Recognized on hedged items	24,666				1,602
Net income/(expense) recognized on fair value hedges	$	( 122 )			$	60

Gain/(loss) on cash flow hedging relationships:
Interest rate contracts
Amounts related to interest settlements on derivatives			$	498			$	( 854 )
Amount of derivative gain/(loss) reclassified from AOCI into interest income/expense			—				—
Net income/(expense) recognized on cash flow hedges			$	498			$	( 854 )

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


	Six Months Ended March 31, 2020						Six Months Ended March 31, 2019
	Interest income on loans receivable		Interest expense on FHLB advances		Interest income on loans receivable		Interest expense on FHLB advances
	(In thousands)						(In thousands)
Interest income/(expense), including the effects of fair value and cash flow hedges	$	280,695	$	( 27,026 )	$	278,126	$	( 34,737 )

Gain/(loss) on fair value hedging relationships:
Interest rate contracts
Amounts related to interest settlements on derivatives	$	( 186 )			$	77
Recognized on derivatives	( 19,984 )				( 3,917 )
Recognized on hedged items	20,073				3,881
Net income/(expense) recognized on fair value hedges	$	( 97 )			$	41

Gain/(loss) on cash flow hedging relationships:
Interest rate contracts
Amounts related to interest settlements on derivatives			$	284			$	( 1,404 )
Amount of derivative gain/(loss) reclassified from AOCI into interest income/expense			—				—
Net income/(expense) recognized on cash flow hedges			$	284			$	( 1,404 )

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 interest rate swaps are derivatives under ASC 815, with changes in fair value recorded in earnings. There was no net impact to the statement of operations for the six months ended March 31, 2020 and 2019 as the changes in fair value of the receive fixed swap and pay fixed swap offset each other.

The following tables present the impact of derivative instruments (client swap program) that are not designated in accounting hedges under ASC 815 for the periods presented.


(In thousands)		Three Months Ended March 31,
Derivative instruments	Classification of gain/(loss) recognized in income on derivative instrument	2020		2019
Interest rate contracts:
Pay fixed/receive floating swap	Other noninterest income	$	( 28,184 )	$	( 6,163 )
Receive fixed/pay floating swap	Other noninterest income	28,184		6,163
		$	—	$	—

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


(In thousands)		Six Months Ended March 31,
Derivative instruments	Classification of gain/(loss) recognized in income on derivative instrument	2020		2019
Interest rate contracts:
Pay fixed/receive floating swap	Other noninterest income	$	( 22,776 )	$	( 15,553 )
Receive fixed/pay floating swap	Other noninterest income	22,776		15,553
		$	—	$	—

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE H – Revenue from Contracts with Customers

Since net interest income on financial assets and liabilities is outside the scope of ASU No. 2014-09, Revenue from Contracts with Customers ("ASC 606"), a significant majority of our revenues are not subject to that guidance.

Revenue streams that are within the scope of ASC 606 are presented within non-interest income and are, in general, recognized as revenue at the same time the Company's obligation to the customer is satisfied. Most of 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. In scope revenue streams represented approximately 4.7 % of our total revenues for the six months ended March 31, 2020, compared to 4.9 % for the six months ended March 31, 2019. 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 non-interest income within the scope of the 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 payment network in this case).

Insurance Agency Commissions (recognized in Other income) - WAFD Insurance Group, Inc. is a wholly-owned subsidiary of Washington Federal Bank, 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.

NOTE I – Commitments and Contingencies

Lease Commitments - The Company’s lease commitments consist primarily of real estate property for branches and office space under various non-cancellable operating leases that expire between 2020 and 2070. The majority of the leases contain renewal options and provisions for increases in rental rates based on a predetermined schedule or an agreed upon index. If, at lease inception, the Company considers the exercising of a renewal option to be reasonably certain, the Company will include the extended term in the calculation of the right-of-use asset and lease liability.

Operating lease liabilities and right-of-use assets are recognized on the lease commencement date based on the present value of the future minimum lease payments over the lease term. The future lease payments are discounted at a rate that represents the Company's collateralized borrowing rate for financing instruments of a similar term and are included in Accrued expenses and other liabilities. The related right-of-use asset is included in Other assets.

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

The table below presents the Company’s operating lease right-of-use asset and the related lease liability.


(In thousands)	March 31, 2020
Operating lease asset	$	29,035
Operating lease liability	$	30,522

As of March 31, 2020, the Company’s operating leases have a weighted average remaining lease term of 8.9 years and a weighted average discount rate of 2.0 %. Cash paid for amounts included in the measurement of the above operating lease liability was $ 3,178,000 for the six months ended March 31, 2020. Right-of-use assets obtained in exchange for new operating lease liabilities during the same period were $ 2,734,000 .

The following table presents the components of net lease costs, a component of Occupancy expense. The Company elected not to separate lease and non-lease components and instead account for them as a single lease component. Variable lease costs include subsequent increases in index-based rents and variable payments such as common area maintenance.


(In thousands)	Three Months Ended March 31,		Six Months Ended March 31,
	2020		2020
Operating lease cost	$	1,671	$	3,273
Variable lease cost	335		555
Sublease income	( 93 )		( 179 )
Net lease cost	$	1,913	$	3,649

The following table shows future minimum payments for operating leases as of March 31, 2020 for the respective periods.


(In thousands)	Year ending September 30,

remainder of 2020	$	3,014
2021	5,621
2022	5,125
2023	4,574
2024	3,826
Thereafter	11,420
Total minimum payments	33,580
Amounts representing interest	( 3,058 )
Present value of minimum lease payments	$	30,522

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Future minimum lease payments for the Company’s operating leases as of September 30, 2019, prior to the adoption of the new lease guidance, were as follows.


(In thousands)	Year ending September 30,

2020	$	5,838
2021	5,246
2022	4,698
2023	4,302
2024	3,596
Thereafter	10,531
Total minimum payments	$	34,211

Financial Instruments with Off-Balance Sheet Risk - The only material off-balance-sheet credit exposures are loans in process and unused lines of credit, which had a combined balance of $ 2,646,603,000 and $ 2,379,089,000 at March 31, 2020 and September 30, 2019, respectively. The Company reserves for estimated losses on these off-balance-sheet credit exposures using historical loss factors for each type of credit. The reserve was $ 8,500,000 as of March 31, 2020, which is an increase from $ 6,900,000 at September 30, 2019

Legal Proceedings - The Company and its subsidiaries are from time to time defendants in and are threatened with various legal proceedings arising from regular business activities. Management, after consulting with legal counsel, is of the opinion that the ultimate liability, if any, resulting from these pending or threatened actions and proceedings will not have a material effect on the financial statements of the Company.

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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 natural or man-made disasters, calamities, or conflicts, including terrorist events and pandemics (such as the COVID-19 pandemic), including on our asset credit quality and business operations, as well as its impact on general economic and financial market conditions;

• 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, including risk related to LIBOR reform;

• 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;

• 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.

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

GENERAL & BUSINESS DESCRIPTION

Washington Federal Bank, National Association, a federally-insured national bank dba WaFd Bank (the “Bank” or “WaFd Bank”), was founded on April 24, 1917 in Ballard, Washington and is 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. Washington Federal, Inc., a Washington corporation (the “Company”), was formed as the Bank’s holding company in November, 1994. As used throughout this document, the terms “Washington Federal” or the “Company” refer to the Company and its consolidated subsidiaries, and the term “Bank” refers to the operating subsidiary, Washington Federal Bank, National Association. The Company is headquartered in Seattle, Washington.

The Company's fiscal year end is September 30 ^th . All references to 2019 represent balances as of September 30, 2019 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 63% of total deposits as of March 31, 2020 while the composition of the investment securities portfolio is 27% variable and 73% 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 $920,255,000 of mortgage-backed securities that it has designated as held-to-maturity and are carried at amortized cost. As of March 31, 2020, the net unrealized gain on these securities was $27,938,000. The Company has $1,693,047,000 of available-for-sale securities that are carried at fair value. As of March 31, 2020, the net unrealized gain on these securities was $25,580,000. The Company has executed interest rate swaps to hedge interest rate risk on certain FHLB borrowings. The unrealized loss on these interest rate swaps as of March 31, 2020 was $17,189,000. 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 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.

As of March 31, 2020, 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 increase by 1.9% in the next year. This compares to an estimated increase of 1.4% as of the September 30, 2019 analysis. The change is primarily due to fluctuating interest rates and the impact to expected prepayment speeds as well as shifts in the mix of fixed versus adjustable rate assets and updated 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 0.3% in the first year and increase of 0.2% in the second year assuming a constant balance sheet and no management intervention. We have not provided an estimate of any impact on net interest income of a decrease in interest rates at March 31, 2020 as many of our interest rate sensitive assets and liabilities are tied to interest rates that are already at or near their historical minimum levels (i.e., Prime and LIBOR) and, therefore, could not materially decrease further assuming U.S. market interest rates continue to remain above zero percent. Sustained negative interest rates for an economy with the size and complexity of the United States would likely lead to broad macroeconomic impacts that are difficult to foresee. While there is a possibility that U.S market interest rates could fall below zero percent, this has not historically occurred in the United States.

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 March 31, 2020, in the event of an immediate and parallel increase of 200 basis points in interest rates, the NPV is estimated to increase by $29,689,000 or 1.5% and the NPV to total

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

assets ratio to increase to 12.1% from a base of 11.4%. As of September 30, 2019, the NPV in the event of a 200 basis point increase in rates was estimated to decline by $257,638,000 or 10.5% and the NPV to total assets ratio to decline to 13.9% from a base of 14.6%. The change in NPV sensitivity is due primarily to the drop in interest rates that has impacted asset prices as well as sensitivity to expected prepayment speeds on fixed rate loans and mortgage-backed securities as of March 31, 2020.

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 decreased to 2.70% at March 31, 2020 from 2.80% at September 30, 2019. The spread compression of 10 basis points is primarily due to the decrease in short-term interest rates, which resulted in a lower rate on interest earning assets partially offset by a lower rate on interest-bearing liabilities. As of March 31, 2020, the weighted average rate earned on interest-earning assets decreased by 51 basis points to 3.59% compared to September 30, 2019, while the weighted average rate being paid on interest-bearing liabilities decreased by 41 basis points to 0.89%. The interest rate spread decreased to 2.70% at March 31, 2020 from 2.81% at March 31, 2019 due to the same factors described above.

Net Interest Margin - Net interest margin is measured as net interest income divided by average earning assets for the period. Net interest margin decreased to 3.10% for the quarter ended March 31, 2020 from 3.15% for the quarter ended March 31, 2019. The yield on interest-earning assets decreased 23 basis points to 4.22% and the cost of interest-bearing liabilities increased 16 basis points to 1.19% over that same period. The lower yield on interest-earning assets is the result of the decrease in short-term interest rates, which resulted in a lower rate being earned on cash and adjustable rate loans and investment securities. The lower rate in interest-bearing liabilities was primarily due lower rates paid on FHLB advances as well as a decrease in rates on interest-bearing deposits.

The following tables set 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 March 31, 2020										Three Months Ended March 31, 2019
	Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate
	($ in thousands)										($ in thousands)
Assets
Loans receivable	$	11,905,574	$	138,549	4.67	%	$	11,824,247	$	141,061	4.84	%
Mortgaged-backed securities	2,194,479		14,341		2.62		2,573,669		19,343		3.05
Cash & Investments	951,719		5,281		2.23		727,540		5,523		3.08
FHLB & FRB stock	122,320		1,447		4.74		138,646		1,655		4.84
Total interest-earning assets	15,174,092		159,618		4.22	%	15,264,102		167,582		4.45	%
Other assets	1,204,060						1,156,071
Total assets	$	16,378,152					$	16,420,173

Liabilities and Equity
Customer accounts	$	11,919,451	$	28,638	0.96	%	$	11,602,579	$	29,666	1.04	%
FHLB advances	2,208,242		13,368		2.43		2,616,389		17,846		2.77
Other borrowings	77		—		—		—		—		—
Total interest-bearing liabilities	14,127,770		42,006		1.19	%	14,218,968		47,512		1.36	%
Other liabilities	207,358						196,926
Total liabilities	14,335,128						14,415,894
Shareholders' equity	2,043,024						2,004,279
Total liabilities and equity	$	16,378,152					$	16,420,173
Net interest income			$	117,612					$	120,070
Net interest margin (NIM)					3.10	%					3.15	%

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES


	Six Months Ended March 31, 2020										Six Months Ended March 31, 2019
	Average Balance		Interest		Average Rate		Average Balance		Interest		Average Rate
	($ in thousands)										($ in thousands)
Assets
Loans receivable	$	11,924,137	$	280,695	4.70	%	$	11,681,886	$	278,126	4.77	%
Mortgaged-backed securities	2,277,880		29,953		2.62		2,583,206		38,535		2.99
Cash & Investments	863,698		10,706		2.47		652,747		10,274		3.16
FHLB & FRB stock	123,450		3,088		4.99		135,441		3,269		4.84
Total interest-earning assets	15,189,165		324,442		4.26	%	15,053,280		330,204		4.40	%
Other assets	1,196,989						1,161,886
Total assets	$	16,386,154					$	16,215,166

Liabilities and Equity
Customer accounts	$	11,903,723	$	60,119	1.01	%	$	11,518,720	$	56,245	0.98	%
FHLB advances	2,236,503		27,026		2.41		2,536,264		34,737		2.75
Other liabilities	38		—		—		—		—		—
Total interest-bearing liabilities	14,140,264		87,145		1.23	%	14,054,984		90,982		1.30	%
Other liabilities	205,005						162,790
Total liabilities	14,345,269						14,217,774
Shareholders' equity	2,040,885						1,997,392
Total liabilities and equity	$	16,386,154					$	16,215,166
Net interest income			$	237,297					$	239,222
Net interest margin (NIM)					3.12	%					3.18	%

As of March 31, 2020, total assets had increased by $900,719,000 to $17,375,629,000 from $16,474,910,000 at September 30, 2019. During the six months ended March 31, 2020, cash and cash equivalents increased by $1,076,416,000, loans receivable decreased $43,666,000, and investment securities decreased by $315,920,000.

Cash and cash equivalents of $1,495,574,000 and shareholders’ equity of $1,985,967,000 as of March 31, 2020 provide management with flexibility in managing interest rate risk going forward.

LIQUIDITY AND CAPITAL RESOURCES

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. Additionally, the Company earns fee income for loan, deposit, insurance and other services.

The Company is actively working with its borrowers to modify consumer mortgage and commercial loans to provide payment deferrals as a result of the COVID-19 pandemic. The terms of the payment deferrals are generally 90 days for consumer mortgage loans and up to 180 days for commercial loans. As of March 31, 2020, 133 mortgage loans totaling $45,000,000 and 7 commercial loans totaling $11,000,000 had been modified. In addition, the Company has participated in the Small Business Administration’s Paycheck Protection Program (“PPP”). This program came about through the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) passed by Congress to help small businesses keep their employees employed through the COVID-19 shelter in place orders. As of May 4, 2020, the Company had assisted over 5,000 businesses with more than $700,000,000 in PPP loans.

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

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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 $1,495,574,000 at March 31, 2020, an increase from $419,158,000 at September 30, 2019. These amounts include the Bank's operating cash.

The Company’s shareholders' equity at March 31, 2020 was $1,985,967,000, or 11.43% of total assets. This is a decrease of $47,028,000 from September 30, 2019 when net worth was $2,032,995,000, or 12.34% of total assets. The Company’s shareholders' equity was impacted in the six months ended March 31, 2020 by net income of $103,653,000, the payment of $33,374,000 in cash dividends, treasury stock purchases of $112,089,000, as well as an other comprehensive loss of $8,831,000. The ratio of tangible capital to tangible assets at March 31, 2020 was 9.82%. 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.

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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
($ in thousands)	Capital		Ratio		Ratio		Ratio

March 31, 2020
Common Equity Tier I risk-based capital ratio:
The Company	$	1,670,902	13.62	%	4.50	%	NA
The Bank	1,651,265		13.46	%	4.50	%	6.50	%
Tier I risk-based capital ratio:
The Company	1,670,902		13.62	%	6.00	%	NA
The Bank	1,651,265		13.46	%	6.00	%	8.00	%
Total risk-based capital ratio:
The Company	1,818,903		14.82	%	8.00	%	NA
The Bank	1,799,266		14.67	%	8.00	%	10.00	%
Tier 1 Leverage ratio:
The Company	1,670,902		10.42	%	4.00	%	NA
The Bank	1,651,265		10.30	%	4.00	%	5.00	%

September 30, 2019
Common Equity Tier 1 risk-based capital ratio:
The Company	$	1,710,147	14.30	%	4.50	%	NA
The Bank	1,666,426		13.93	%	4.50	%	6.50	%
Tier I risk-based capital ratio:
The Company	1,710,147		14.30	%	6.00	%	NA
The Bank	1,666,426		13.93	%	6.00	%	8.00	%
Total risk-based capital ratio:
The Company	1,848,581		15.45	%	8.00	%	NA
The Bank	1,804,860		15.09	%	8.00	%	10.00	%
Tier 1 Leverage ratio:
The Company	1,710,147		10.51	%	4.00	%	NA
The Bank	1,666,426		10.24	%	4.00	%	5.00	%

CHANGES IN FINANCIAL CONDITION

Cash and cash equivalents - Cash and cash equivalents are $1,495,574,000 at March 31, 2020, an increase of $1,076,416,000, or 256.8%, since September 30, 2019. The increase is primarily due to FHLB advances being $800,000,000 higher.

Available-for-sale and held-to-maturity investment securities - Available-for-sale securities increased $207,305,000, or 14.0%, during the six months ended March 31, 2020, mostly due to $374,680,000 of securities reclassified from held-to-maturity pursuant to the adoption of ASU 2019-04 and purchases of $159,884,000, partially offset by sales of $204,351,000 as well as principal repayments and maturities of $132,690,000. During the same period, the balance of held-to-maturity securities decreased by $523,225,000 primarily due to $374,680,000 of securities reclassified to available-for-sale pursuant to the adoption of ASU 2019-04 and principal pay-downs and maturities of $147,142,000. As of March 31, 2020, the Company had a net unrealized gain on available-for-sale securities of $25,580,000, 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 $43,666,000 to $11,974,241,000 at March 31, 2020, compared to $11,930,575,000 at September 30, 2019. The increase was primarily the net result of originations of $2,607,979,000 and loan principal repayments of $2,504,601,000. Commercial loan originations accounted for 76% of total originations and consumer loan originations were 24% during the period. The mix of loan originations is consistent with management's strategy during low rate environments to produce more construction, 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.


	March 31, 2020						September 30, 2019						Change
	($ in thousands)						($ in thousands)						$	%
Gross loans by category
Single-family residential	$	5,582,244	41.5	%	$	5,835,194	43.8	%	$	(252,950)	(4.3)	%
Construction	2,204,283		16.4		2,038,052		15.3		166,231		8.2
Construction - custom	547,731		4.1		540,741		4.1		6,990		1.3
Land - acquisition & development	197,010		1.5		204,107		1.5		(7,097)		(3.5)
Land - consumer lot loans	96,579		0.7		99,694		0.7		(3,115)		(3.1)
Multi-family	1,467,231		10.9		1,422,674		10.7		44,557		3.1
Commercial real estate	1,717,535		12.8		1,631,170		12.3		86,365		5.3
Commercial & industrial	1,371,128		10.2		1,268,695		9.5		102,433		8.1
HELOC	145,761		1.1		142,178		1.1		3,583		2.5
Consumer	105,147		0.8		129,883		1.0		(24,736)		(19.0)
Total gross loans	13,434,649		100	%	13,312,388		100	%	122,261		0.9	%
Less:
Allowance for loan losses	139,501				131,534				7,967		6.1	%
Loans in process	1,289,812				1,201,341				88,471		7.4
Net deferred fees, costs and discounts	31,095				48,938				(17,843)		(36.5)
Total loan contra accounts	1,460,408				1,381,813				78,595		5.7
Net Loans	$	11,974,241			$	11,930,575			$	43,666	0.4	%

Non-performing assets - Non-performing assets decreased $2,439,000 during the six months ended March 31, 2020 to $41,387,000 from $43,826,000 at September 30, 2019. The change is due to a $1,121,000 decrease in non-accrual loans and $1,318,000 decline in real estate owned ("REO"). Non-performing assets as a percentage of total assets was 0.24% at March 31, 2020 compared to 0.27% at September 30, 2019.

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


	March 31, 2020								September 30, 2019
	($ in thousands)
Restructured loans:
Single-family residential	$	97,025		93.3	%	$	111,886		92.0	%


Land - acquisition & development	82			0.1		90			0.1
Land - consumer lot loans	3,418			3.3		3,714			3.1
Multi - family	316			0.3		385			0.3
Commercial real estate	1,883			1.8		4,168			3.4
Commercial & industrial	396			0.4		425			0.3
HELOC	843			0.8		949			0.8
Consumer	56			—		60			—
Total restructured loans (1)	$	104,019		100	%	$	121,677		100	%
Non-accrual loans:
Single-family residential	$	22,859		70.1	%	$	25,271		74.9	%
Construction	3,353			10.3		—			—

Land - acquisition & development	82			0.3		169			0.5
Land - consumer lot loans	408			1.2		246			0.7

Commercial real estate	4,374			13.4		5,835			17.3
Commercial & industrial	470			1.4		1,292			3.8
HELOC	1,064			3.3		907			2.7
Consumer	—			—		11			—
Total non-accrual loans	32,610			100	%	33,731			100	%
Real estate owned	5,463					6,781
Other property owned	3,314					3,314
Total non-performing assets	$	41,387				$	43,826
Total non-performing assets and performing restructured loans as a percentage of total assets	0.82		%			0.97		%
Total Assets
(1) Restructured loans were as follows:
Performing	$	101,076		97.2	%	$	116,659		95.9	%
Non-performing (included in non-accrual loans above)	2,943			2.8		5,018			4.1
	$	104,019		100	%	$	121,677		100	%

For the six months ended March 31, 2020, the Company recognized $1,189,000 in interest income on cash payments received from borrowers on non-accrual loans. The Company would have recognized interest income of $708,000 for the same period had these loans performed according to their original contract terms. Recognized interest income for the six months ended March 31, 2020 was higher than what otherwise would have been recognized 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 $94,763,000 of loans that were less than 90 days delinquent at March 31, 2020 but were classified as substandard for one or more reasons. If these loans were deemed non-performing, the Company's ratio of total NPAs and performing restructured loans as a percent of total assets would have increased to 1.37% at March 31, 2020.

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.

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 93.3% of restructured loans as of March 31, 2020. The concession for these loans is

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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 tables show the Company’s allowance for loan losses by loan category.


March 31, 2020	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)										($ in thousands)
Single-family residential	$	29,280	$	5,566,786	0.5	%	$	—	$	19,606	—	%
Construction	34,283		1,232,378		2.8		—		3,353		—
Construction - custom	1,580		270,880		0.6		—		—		—
Land - acquisition & development	8,732		152,541		5.7		1		82		1.2
Land - consumer lot loans	2,106		92,881		2.3		—		372		—
Multi-family	8,566		1,466,892		0.6		1		316		0.3
Commercial real estate	15,016		1,708,240		0.9		4		9,295		—
Commercial & industrial	36,432		1,370,838		2.7		3		855		0.4
HELOC	1,282		144,119		0.9		—		876		—
Consumer	2,215		104,527		2.1		—		—		—
	$	139,492	$	12,110,082	1.2	%	$	9	$	34,755	—	%


September 30, 2019	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)										($ in thousands)
Single-family residential	$	30,988	$	5,822,200	0.5	%	$	—	$	17,978	—	%
Construction	32,304		1,164,889		2.8		—		—		—
Construction - custom	1,369		255,505		0.5		—		—		—
Land - acquisition & development	9,135		160,964		5.7		20		230		8.7
Land - consumer lot loans	2,143		95,574		2.2		—		375		—
Multi-family	7,387		1,422,266		0.5		4		385		1.0
Commercial real estate	12,847		1,618,406		0.8		323		12,765		2.5
Commercial & industrial	31,358		1,266,913		2.5		92		1,805		5.1
HELOC	1,103		140,378		0.8		—		837		—
Consumer	2,461		129,527		1.9		—		50		—
	$	131,095	$	12,076,622	1.1	%	$	439	$	34,425	1.3	%

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The Company is required to adopt FASB's current expected credit losses standard ("CECL") on October 1, 2020. However, in order to improve the comparability of the Company's financial statements with other banks, management is in the process of evaluating the potential of adopting CECL prior to that date. As of March 31, 2020, management estimates that the allowance for credit losses (loans and unfunded commitments) under CECL would be approximately $176,000,000, or 1.31% of gross loans outstanding. If the Company elects an early adoption of CECL, a one-time entry to opening retained earnings (October 1, 2019) will be recorded to increase the allowance for credit losses and decrease retained earnings based on the CECL calculation as of that date.

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 $2,646,603,000 and $2,379,089,000 at March 31, 2020 and September 30, 2019, respectively. The Company reserves for estimated losses on these off-balance-sheet credit exposures using historical loss factors for each type of credit. The reserve for unfunded commitments was $8,500,000 as of March 31, 2020, which is an increase from $6,900,000 at September 30, 2019.

Management believes the allowance for loan losses plus the reserve for unfunded commitments, totaling $148,001,000, or 1.10% of gross loans, is sufficient to absorb estimated losses inherent in the portfolio of loans and unfunded commitments. See Note E and Note I for further details of the allowance for loan losses and reserve for unfunded commitments as of and for the period ended March 31, 2020.

Real estate owned - REO decreased during the six months ended March 31, 2020 by $1,318,000 to $5,463,000, primarily due to sales of REO properties during the period.

Intangible assets - Intangible assets increased to $310,977,000 as of March 31, 2020 from $309,247,000 as of September 30, 2019. The increase was due to the purchase of small insurance agencies, partially offset by amortization of finite-lived intangible assets.

Customer accounts - Customer accounts increased $97,656,000, or 0.8%, to $12,088,420,000 at March 31, 2020 compared with $11,990,764,000 at September 30, 2019.

The following table shows the composition of the Bank’s customer accounts by deposit type.


	March 31, 2020										September 30, 2019
	Deposit Account Balance		As a % of Total Deposits		Weighted Average Rate		Deposit Account Balance		As a % of Total Deposits		Weighted Average Rate
($ in thousands)
Non-interest checking	$	1,664,707	13.8	%	—	%	$	1,621,343	13.5	%	—	%
Interest checking	2,210,387		18.3		0.19		1,984,576		16.6		0.61
Savings	759,604		6.3		0.12		753,574		6.3		0.13
Money market	3,029,341		25.0		0.42		2,724,308		22.7		0.82
Time deposits	4,424,381		36.6		1.69		4,906,963		40.9		1.91
Total	$	12,088,420	100	%	0.77	%	$	11,990,764	100	%	1.08	%

FHLB advances and other borrowings - Total borrowings totaled $3,050,000,000 as of March 31, 2020, an increase from $2,250,000,000 as of September 30, 2019. The increase is a result of $1,000,000,000 in new FHLB advances offset by repayment of $200,000,000 in FHLB advances. The weighted average rate for FHLB borrowings was 1.37% as of March 31, 2020 and 2.49% at September 30, 2019. The decrease is primarily due to lower rates on new FHLB advances.

Shareholders' equity - The Company’s total shareholders' equity at March 31, 2020 was $1,985,967,000, or 11.43% of total assets. This was a decrease of $47,028,000 from the September 30, 2019 total of $2,032,995,000, or 12.34% of total assets. The Company’s equity was impacted in the six months ended March 31, 2020 by net income of $103,653,000, the payment of $33,374,000 in cash dividends, treasury stock purchases of $112,089,000, as well as an other comprehensive loss of $8,831,000.

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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

RESULTS OF OPERATIONS

Net Income - The Company recorded net income of $37,950,000 for the three months ended March 31, 2020 compared to $51,098,000 for the prior year quarter. The Company recorded net income of $103,653,000 for the six months ended March 31, 2020 compared to $104,040,000 for the same period one year ago.

Net Interest Income - For the three months ended March 31, 2020, net interest income was $117,612,000, which is $2,458,000 lower than the same quarter of the prior year. Net interest margin was 3.10% for the quarter ended March 31, 2020 compared to 3.15% for the quarter ended March 31, 2019. The decrease in net interest income and compression in net interest margin was primarily due to the yield on earning assets decreasing by 23 basis points to 4.22% and the cost of interest bearing liabilities decreasing by 16 basis points to 1.19% over that same period. The lower yield on earning assets is the result of the decrease in short-term interest rates, which resulted in a lower rate being earned on cash and adjustable rate loans and investment securities. The lower rate in interest-bearing liabilities was primarily due to the decrease in short-term interest rates resulting in lower rates on new FHLB advances and interest-bearing deposits. For the six months ended March 31, 2020, net interest income was $237,297,000, which is $1,925,000 lower than the same period of the prior year. Net interest margin was 3.12% for the six months ended March 31, 2020 compared to 3.18% for the same period for the prior year. The changes period over period are primarily due to the aforementioned factors.

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.

Rate / Volume Analysis :


	Comparison of Three Months Ended 3/31/20 and 3/31/19										Comparison of Six Months Ended 3/31/20 and 3/31/19
($ in thousands)	Volume		Rate		Total		Volume		Rate		Total
Interest income:
Loans receivable	$	1,229	$	(3,741)	$	(2,512)	$	6,585	$	(4,016)	$	2,569
Mortgaged-backed securities	(2,556)		(2,446)		(5,002)		(4,193)		(4,389)		(8,582)
Investments (1)	1,572		(2,022)		(450)		3,101		(2,850)		251
All interest-earning assets	245		(8,209)		(7,964)		5,493		(11,255)		(5,762)
Interest expense:
Customer accounts	946		(1,974)		(1,028)		2,021		1,853		3,874
FHLB advances and other borrowings	(2,506)		(1,972)		(4,478)		(3,768)		(3,943)		(7,711)
All interest-bearing liabilities	(1,560)		(3,946)		(5,506)		(1,747)		(2,090)		(3,837)
Change in net interest income	$	1,805	$	(4,263)	$	(2,458)	$	7,240	$	(9,165)	$	(1,925)

___________________

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

Provision (Release) for Credit Losses - Primarily due to the economic distress caused by the COVID-19 pandemic, the Company recorded a $6,200,000 provision for credit losses for the three months ended March 31, 2020, compared with a $750,000 provision for the three months ended March 31, 2019. The relatively significant provision in the current year quarter primarily relates to estimated impacts to the energy, hospitality, restaurant and senior living industries. A provision for credit losses of $5,200,000 and $250,000 was recorded during the six months ended March 31, 2020 and March 31, 2019, respectively. Reserving for new loan originations has been largely offset by recoveries of previously charged-off loans. Recoveries, net of charge-offs, totaled $1,788,000 for the three months ended March 31, 2020, compared to net recoveries of $1,171,000 during the three months ended March 31, 2019. Recoveries, net of charge-offs, totaled $4,367,000 for the six months ended March 31, 2020, compared to net recoveries of $2,579,000 during the six months ended March 31, 2019.

Other Income - The three months ended March 31, 2020 results include total other income of $16,241,000 compared to $12,810,000 for the same period one year ago, a $3,431,000 increase. The increase of $3,431,000 is primarily due to a $2,381,000 increase in loan fee income driven by higher loan prepayments and a $15,028,000 gain on the sale of $204,351,000 of available-for-sale securities that was partially offset by a $13,809,000 loss on early repayment of a $200,000,000 FHLB

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advance that carried an effective rate of 3.86% and was scheduled to mature in August, 2022. The six months ended March 31, 2020 results include total other income of $62,617,000 compared to $31,819,000 for the same period one year ago, a $30,798,000 increase. The increase is primarily due to the six months ended March 31, 2020 including a gain of $32,600,000 on sales of fixed assets, while the six months ended March 31, 2019 included a net gain of $6,400,000 recognized on the sale and valuation adjustments of fixed assets.

Other Expense - Other expenses have increased as a result of ongoing investments in people, process and technology with the objective of growing market share and ultimately earnings. The three months ended March 31, 2020 results include total other expense of $79,433,000 compared to $67,967,000 for the same period one year ago, a $11,466,000 increase. Compensation and benefits costs increased by $5,843,000, or 17.8%, over the prior year quarter primarily due to a 7.2% rise in headcount, including growth in our compliance program, and higher paying positions to advance our digital and technology initiatives. Information technology costs increased by $2,746,000, primarily due to continued investments in new systems hardware and software. The six months ended March 31, 2020 results include total other expense of $162,069,000 compared to $139,639,000 for the same period one year ago, a $22,430,000 increase. The increase is primarily due to information technology being higher by $10,813,000 which was largely from a $5,931,000 impairment charge on systems hardware and software. In addition, compensation and benefits costs increased by $8,591,000 primarily due to the aforementioned factors. The number of staff, including part-time employees on a full-time equivalent basis, increased by 7.2% to 2,060 at March 31, 2020 from 1,921 at March 31, 2019. Total other expense for the six months ended March 31, 2020 and March 31, 2019 equaled 1.98% and 1.72%, respectively, of average assets.

Gain (Loss) on Real Estate Owned - Results for the three months ended March 31, 2020 include a net gain on real estate owned of $31,000, compared to a net gain of $808,000 for the prior year quarter. Results for the six months ended March 31, 2020 include a net loss on real estate owned of $855,000, compared to a net gain of $1,128,000 for the same period one year ago.

Income Tax Expense - Income tax expense totaled $10,301,000 for the three months ended March 31, 2020, compared to $13,873,000 for the prior year quarter. Income tax expense totaled $28,137,000 for the six months ended March 31, 2020, compared to $28,240,000 for the same period one year ago. The effective tax rate for the six months ended March 31, 2020 was 21.35% compared to 21.35% for the six months ended March 31, 2019. The effective tax rate for the six months ended March 31, 2020 differs from the statutory rate mainly due to state taxes and tax-exempt income.

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, 2019. 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 2019 Form 10-K.

PART I – Financial Information

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 2019 Form 10-K for the year ended September 30, 2019. 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 COVID-19 pandemic is adversely affecting us and our customers, counterparties, employees, and third-party service providers, and the adverse impacts on our business, financial position, results of operations, and prospects could be significant.

The spread of COVID-19 has created a global public-health crisis that has impacted household, business, economic, and market conditions, including in the western United States where we conduct nearly all of our business. The extent of the impact of the COVID-19 pandemic on our capital, liquidity, and other financial positions and on our business, results of operations, and prospects will depend on a number of evolving factors, including:

• The duration, extent, and severity of the pandemic. COVID-19 has not yet been contained and could affect significantly more households and businesses. The duration and severity of the pandemic continue to be impossible to predict, as is the potential for a seasonal or other resurgence after its initial containment.

• The response of governmental and nongovernmental authorities. Many of their actions have been directed toward curtailing household and business activity to contain COVID-19 while simultaneously deploying fiscal- and monetary-policy measures to partially mitigate the adverse effects on individual households and businesses.

• The effect on our customers, counterparties, employees, and third-party service providers. COVID-19 and its associated consequences and uncertainties are affecting individuals, households, and businesses differently and unevenly.

• The effect on economies and markets. Whether the actions of governmental and nongovernmental authorities will be successful in mitigating the adverse effects of COVID-19 is unclear. National, regional, and local economies and markets could suffer disruptions that are lasting. Governmental actions are meaningfully influencing the interest-rate environment and financial-market activity and could have lasting effects on taxes and other economic factors, which could adversely affect our results of operations and financial condition.

During the three months ended March 31, 2020, the most notable impact to our results of operations was a higher provision expense for credit losses. Our provision expense was $6,200,000, primarily due to the unfavorable market conditions associated with COVID-19. Additionally, our operations have been impacted by the need to close certain offices and limit how customers conduct business through our branch network.

Governments have taken unprecedented steps to partially mitigate the adverse effects of their containment measures. For example, in late March 2020, the CARES Act was enacted to inject more than $2 trillion of financial assistance into the U.S. economy. The FRB has taken decisive and sweeping actions as well. Since March 15, 2020, these have included a reduction in the target range for the federal funds rate to 0 to 25 basis points, a program to purchase an indeterminate amount of Treasury securities and agency mortgage-backed securities, and numerous facilities to support the flow of credit to households and businesses. The degree to which our actions and those of governments and others will directly or indirectly assist our customers, counterparties, and third-party service providers and advance our business and the economy generally is not yet clear. The possibility of negative interest rates on U.S. Treasury or other market instruments could adversely affect our results of operations by, for example, reducing asset yields or spreads, creating operating and system issues, or having other adverse impacts on our business.

Failure to comply with the 2013 Consent Order from the Consumer Financial Protection Bureau regarding the Company’s Home Mortgage Disclosure Act submissions could result in additional regulatory enforcement action.

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The Consumer Financial Protection Bureau (the “CFPB”) has formally notified the Company of alleged errors in its Home Mortgage Disclosure Act (“HMDA”) reporting submissions. The CFPB alleges that the Company did not accurately report all required relevant information within the annual HMDA submissions. The Company has responded to the CFPB, noting that it has instituted enhanced procedures to ensure compliance with HMDA and has submitted amended HMDA filings. The Company is still operating under a consent order from 2013 relating to HMDA disclosures and believes that it may be subject to additional enforcement action which may include additional civil money penalties. In 2013, the Company paid a $34,000 civil money penalty associated with previous HMDA violations.

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 March 31, 2020.


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
January 1, 2020 to January 31, 2020	510,120	$	35.07	510,120	6,542,480
February 1, 2019 to February 29, 2020	1,192,844	34.10		1,192,844	5,349,636
March 1, 2020 to March 31, 2020	720,649	27.81		720,649	4,628,987
Total	2,423,613	$	32.43	2,423,613	4,628,987

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(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 66,956,264 shares were authorized for repurchase.

Item 3. Defaults Upon Senior Securities

Not applicable

Item 4. Mine Safety Disclosures

Not applicable

Item 5. Other Information

Not applicable

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 March 31, 2020 formatted in iXBRL

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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.


May 7, 2020			/ S / BRENT J. BEARDALL
			BRENT J. BEARDALL President & Chief Executive Officer

May 7, 2020			/ S / VINCENT L. BEATTY
			VINCENT L. BEATTY Executive Vice President and Chief Financial Officer

May 7, 2020			/ S / CORY D. STEWART
			CORY D. STEWART Senior Vice President and Principal Accounting Officer

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Part I Financial Information Item 4. Controls and Procedures Part II Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits

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

WAFD 10-Q Quarter ended March 31, 2020

Exhibits