FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________
For Quarter Ended December 31, 1997 Commission file number 0 25454
WASHINGTON FEDERAL, INC.
(Exact name of registrant as specified in its charter)
Washington 91-1661606
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
425 Pike Street, Seattle, Washington 98101
(Address of principal executive offices and Zip Code)
(206) 624-7930
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
(1) Yes X . No .
(2) Yes X . No .
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Title of class: at February 10, 1998
Common stock, $1.00 par value 47,623,602 shares
<PAGE>
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART I
Item 1. Financial Statements
The Consolidated Financial Statements of Washington Federal, Inc.
and Subsidiaries filed as a part of the report are as follows:
Consolidated Statements of Financial Condition
as of December 31, 1997 and September 30, 1997 Page 3
Consolidated Statements of Operations for the three
months ended December 31, 1997 and Page 4
Consolidated Statements of Cash Flows for the
three months ended December 31, 1997 and 1996 Page 5
Notes to Consolidated Financial Page 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations Page 7
PART II
Item 1. Legal Proceedings Page 10
Item 2. Changes in Securities Page 10
Item 3. Defaults upon Senior Securities Page 10
Item 4. Submission of Matters to a Vote of Stockholders Page 10
Item 5. Other Information Page 10
Item 6. Exhibits and Reports on Form 8-K Page 10
Signatures Page 11
<PAGE>
<TABLE>
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
<CAPTION>
December 31, 1997 September 30, 1997
(In thousands, except per share data)
<S> <C> <C>
ASSETS
Cash $ 33,221 $ 23,444
Available-for-sale securities, including
mortgage-backed securities of $393,912 662,342 672,132
Held-to-maturity securities, including
mortgage-backed securities of $517,508 540,979 564,747
Loans receivable 4,206,395 4,190,776
Interest receivable 36,974 36,383
Premises and equipment, net 48,199 47,552
Real estate held for sale 30,338 30,189
FHLB stock 95,471 93,584
Costs in excess of net assets acquired 57,272 58,774
Other assets 2,117 2,008
$5,713,308 $5,719,589
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Customer accounts
Savings and demand accounts $2,911,258 $2,905,371
Repurchase agreements with customers 70,982 72,660
2,982,240 2,978,031
FHLB advances 1,523,500 1,601,000
Other borrowings, primarily securities
sold under agreements to repurchase 342,511 303,544
Advance payments by borrowers for
taxes and insurance 11,256 26,340
Federal and state income taxes 73,934 52,259
Accrued expenses and other liabilities 43,105 40,670
4,976,546 5,001,844
Stockholders' equity
Common stock, $1.00 par value, 100,000,000
shares authorized; 51,161,742 and
51,137,889 shares issued; 47,532,612
and 47,508,759 shares outstanding 51,162 51,138
Paid-in capital 573,563 573,241
Valuation adjustment for available-for-sale
securities, net of taxes 33,000 30,000
Treasury stock, at cost; 3,629,130 and
3,629,130 shares (68,266) (68,266)
Retained earnings 147,303 131,632
736,762 717,745
$5,713,308 $5,719,589
CONSOLIDATED FINANCIAL HIGHLIGHTS
Stockholders' equity per share $ 15.50 $ 15.11
Stockholders' equity to total assets 12.90% 12.55%
Loans serviced for others $ 110,317 $ 119,897
Weighted average rates at period end
Loans and mortgage-backed securities 8.15% 8.17%
Investment securities 7.70% 7.72%
Combined rate on loans, mortgage-backed
securities and investment securities 8.12% 8.14%
Customer accounts 5.16% 5.18%
Borrowings 5.57% 5.51%
Combined cost of customer accounts
and borrowings 5.32% 5.31%
Interest rate spread 2.80% 2.83%
*Includes municipal bonds at tax equivalent yields
</TABLE>
<PAGE>
<TABLE>
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Quarter Ended December 31,
1997 1996
(Dollars in thousands,
except per share data)
<S> <C> <C>
INTEREST INCOME
Loans $ 92,141 $ 84,362
Mortgage-backed securities 17,339 18,069
Investment securities 6,752 6,379
116,232 108,810
INTEREST EXPENSE
Customer accounts 39,200 32,422
FHLB advances and other borrowings 26,076 28,559
65,276 60,981
Net interest income 50,956 47,829
Provision for loan losses 159 229
Net interest income after provision for
loan losses 50,797 47,600
OTHER INCOME
Gain on sale of securities 745
Other 1,148 964
1,893 964
OTHER EXPENSE
Compensation and fringe benefits 5,817 5,878
Regulatory assessments 446 1,039
Occupancy expense 1,050 991
Other 3,487 2,963
10,800 10,871
Gain on real estate owned, net 101 23
Income before income taxes 41,991 37,716
Income taxes 14,907 13,615
NET INCOME $ 27,084 $ 24,101
PER SHARE DATA
Basic earnings per share $ .57 $ .53
Diluted earnings per share $ .56 $ .53
Cash dividends $ .24 $ .22
Weighted average number of shares outstanding,
including dilutive stock options 48,156,417 46,163,957
Return on average assets 1.91% 1.76%
</TABLE>
<PAGE>
<TABLE>
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Quarter Ended December 31,
1997 1996
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 27,084 $ 24,101
Adjustments to reconcile net income to
net cash provided by operating activities
Amortization of fees, discounts and
premiums, net (5,815) (4,423)
Amortization of costs in excess of net
assets acquired 1,502 1,124
Depreciation 585 505
Gains on investment securities and real
estate held for sale (845) (19)
Decrease (increase) in accrued
interest receivable (591) 276
Increase in income taxes payable 18,675 15,110
FHLB stock dividends (1,887) (1,568)
Decrease (increase) in other assets (109) 8,511
Increase (decrease) in accrued expenses
and other liabilities 2,435 (1,784)
Net cash provided by operating activities 41,034 41,833
CASH FLOWS FROM INVESTING ACTIVITIES
Loans and contracts originated
Loans on existing property (161,655) (139,312)
Construction loans (107,131) (88,051)
Land loans (24,306) (18,486)
Loans refinanced (28,972) (9,548)
(322,064) (255,397)
Savings account loans originated (1,516) (1,120)
Loan principal repayments 319,202 229,202
Decrease in undisbursed loans in process (9,272) (30,385)
Loans purchased (434) (205)
Purchase of available-for-sale securities (10,000) ---
Principal payments and maturities of
available-for-sale securities 16,584 23,629
Sales of available-for-sale securities 10,744 ---
Principal payments and maturities of
held-to-maturity securities 24,041 16,265
Proceeds from sale of real estate
held for sale 3,165 2,881
Premises and equipment purchased, net (1,232) (2,172)
FHLB stock purchased --- (9,057)
Cash received from acquisitions --- 3,590
Net cash (used) provided by investing
activities 29,218 (22,769)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in customer accounts 4,209 (32,411)
Net increase(decrease) in short-term borrowings (38,533) 51,590
Proceeds from exercise of common stock options 346 116
Dividends (11,413) (10,359)
Treasury stock purchases --- (1,136)
Decrease in advance payments by borrowers
for taxes and insurance (15,084) (13,005)
Net cash used by financing activities (60,475) (5,205)
Increase in cash 9,777 13,589
Cash at beginning of period 23,444 19,635
Cash at end of period $ 33,221 $ 33,494
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Non-cash investing activities
Real estate acquired through foreclosure $ 3,213 $ 1,045
Cash paid during the period for
Interest 68,311 62,565
Income taxes --- ---
</TABLE>
<PAGE>
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED DECEMBER 31, 1997
NOTE A - Basis of Presentation
The consolidated interim financial statements included in this report
have been prepared by Washington Federal, Inc. ("Company") without
audit. In the opinion of management, all adjustments (consisting only
of normal recurring accruals) necessary for a fair presentation are
reflected in the interim financial statements. The September 30, 1997
Consolidated Statement of Financial Condition was derived from audited
financial statements.
NOTE B - Cash Dividend Paid
Dividends per share increased to 24 cents for the quarter ended December
31, 1997 compared with 22 cents for the same period one year ago. On
January 23, 1998 the Company paid its 60th consecutive quarterly cash
dividend.
NOTE C - Stock Dividend
On January 28, 1998, the Board of Directors of the Company declared an
eleven-for-ten stock split in the form of a 10% stock dividend to
stockholders of record on February 12, 1998 to be distributed on
February 26, 1998. All previously reported per share amounts will be
adjusted accordingly.
NOTE D - Year 2000
Washington Federal has initiated a program to prepare the Company's computer
systems and applications for the year 2000. The Board of Directors has
established the time frame for year 2000 compliance company-wide. The Data
Processing Department has been working on this effort for several months.
The Company is to have all products, services and supporting technical systems
year 2000 compliant by the fourth quarter of 1998. The testing and conversion
of system applications is not expected to result in a material cost to the
Company.
NOTE E - Earnings per Share
SFAS No. 128, "Earnings per Share" (SFAS No. 128) was issued in February,
1997. Under SFAS No. 128, the Company is required to present both basic and
diluted EPS on the face of its statement of operations. The following table
provides a reconciliation of the numerators and denominators of the basic and
diluted computations.
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS
Income available to
common stockholders $27,084,000 47,521,059 .57
Diluted EPS
Income available to
common stockholders
plus assumed conversions $27,084,000 48,156,417 .56
<PAGE>
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART I - Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
GENERAL
Washington Federal, Inc. (the "Company") is a unitary savings and loan
holding company. The Company's wholly-owned subsidiary, Washington
Federal Savings (the "Association") is the Company's primary operating
entity.
INTEREST RATE RISK
The Company assumes a high level of interest rate volatility as a result
of its policy to originate fixed-rate single family home loans which are
longer-term in nature than the short-term characteristics of its
liabilities of customer accounts and borrowed money. At December 31,
1997 the Company had a negative one year maturity gap of approximately
50% of total assets.
The interest rate spread declined to 2.80% at December 31, 1997 from
2.83% at September 30, 1997. Interest rate spreads for the three
previous quarters were relatively flat. During this phase of the
interest rate cycle the Company chose to control its asset growth,
strengthen its capital position and deleverage the balance sheet by
reducing its borrowed money. FHLB advances and other borrowed money
decreased to an equivalent of 32.7% of total assets at December 31,
1997, compared to 33.3% of total assets at September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net worth at December 31, 1997 was $736,762,000 or 12.9%
of total assets. This is an increase of $19,017,000 from September 30,
1997 when net worth was $717,745,000 or 12.6% of total assets.
The Company's percentage of net worth to total assets is among the
highest in the nation and the Association's regulatory capital ratios
are over three times the minimum required under Office of Thrift
Supervision ("OTS") regulations. Management believes this strong net
worth position will help protect earnings against interest rate risk and
enable it to compete more effectively for controlled growth through
acquisitions and customer deposits increases.
The Company's cash and investment securities amounted to $325,122,000, a
$11,928,000 increase from a quarter ago.
The minimum liquidity levels of the Association are governed by the
regulations of the OTS. Liquidity is defined as the ratio of average
cash and eligible unpledged investment securities to the sum of average
withdrawable savings plus short-term (one year) borrowings. Currently,
the Association is required to maintain total liquidity at four
percent. At December 31, 1997, total liquidity was 5.26% compared to
5.06% at September 30, 1997.
<PAGE>
CHANGES IN FINANCIAL POSITION
Available-for-sale and held-to-maturity securities. As of December 31,
1997, the Company had unrealized gains of $33,000,000, net of tax, which
are recorded as part of stockholders' equity.
Loans receivable. Loans receivable grew less than 1% during the quarter
to $4,206,395,000 at December 31, 1997 from $4,190,776,000 at September
30, 1997.
The Company measures loans that will not be repaid in accordance with
their contractual terms using a discounted cash flow methodology or the
fair value of the collateral for certain loans. Smaller balance loans
are excluded with limited exceptions. At December 31, 1997, the
Company's recorded investment in impaired loans was $6,157,000 which
had allocated reserves of $2,192,000. Loans of $3,938,000 did not
require reserves. The average balance of impaired loans during the
quarter was $10,096,000 and interest income(cash received) from impaired
loans was $98,000.
Costs in excess of net assets acquired. The Company periodically
monitors these assets for potential impairment of which there was none
at December 31, 1997. The Company will continue to evaluate these assets
and, if appropriate, provide for any diminuition in value of these
assets as a result of any legislation.
Customer accounts. Customer accounts at December 31, 1997 were
$2,982,240,000 compared with $2,978,031,000 at September 30, 1997.
FHLB advances and other borrowings. Total borrowings decreased to
$1,866,011,000. See Interest Rate Risk above.
RESULTS OF OPERATIONS
Net interest income increased $3,127,000 (7%) to $50,956,000 for the
December 1997 quarter from $47,829,000 a year ago. The net interest
spread was 2.80% at December 31, 1997 compared to 2.83% at September 30,
1997 and 2.88% at December 31, 1996.
Interest income on loans increased $7,779,000 (9%) to $92,141,000 for
the quarter ended December 1997 from $84,362,000 a year ago. The
increase is associated with the increase in total outstanding loans to
$4,206,395,000 at December 31, 1997 from $4,131,145,000 at the December
31, 1996. Average interest rates on loans decreased to 8.27% from
8.29% a year ago.
Interest income on mortgage-backed securities declined $730,000 (4%) to
$17,339,000 for the quarter ended December 31, 1997 versus $18,069,000
the same period one year ago. The weighted average yield of 7.56% at
December 31, 1997 was higher than the 7.54% at December 31, 1996.
<PAGE>
Interest on investments increased $373,000 (6%) in the quarter versus
the year ago quarter. The weighted average yield increased to 7.70% at
December 31, 1997 compared with 7.56% at December 31, 1996. The
combined investment securities and FHLB stock portfolio increased to
$387,372,000 at December 31, 1997 versus $374,941,000 one year ago.
Interest expense on customer accounts increased $6,778,000 (21%) to
$39,200,000 for the quarter ended December 31, 1997 from $32,422,000 for
the same period one year ago. The average cost of customer accounts
increased to 5.16% at quarter end compared to 5.01% one year ago.
Interest on FHLB advances and other borrowings decreased $2,483,000 (9%)
to $26,076,000 for the December 1997 quarter compared with $28,559,000
for the same quarter a year ago. The average rates paid at December 31,
1997 increased to 5.57% versus 5.45% at December 31, 1996.
Other income increased $929,000 (96%) for the December 1997 quarter
compared with the December 1996 quarter. Gains on the sale of
available-for-sale securities totalled $745,000 in the December 1997
quarter while no securities were sold in the December 1996 quarter.
Other expense decreased $210,000 (2%) for the quarter ended December
1997 compared with the December 1996 quarter, after adjusting for the
$139,000 decrease in deferred loan origination costs associated with
lower loan volumes. Other expense for the December 1997 quarter equalled
.76% of average assets compared to .79% for the same quarter a year ago,
while the number of staff, including part-time employees on a full-time
equivalent basis, were 660 for both periods.
Income taxes increased $1,292,000 (9%) in the December 1997 quarter due
to a higher taxable income base. The effective tax rate was 35.5% for
December 1997 and 36.1% for the December 1996 quarter.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and related Notes presented
elsewhere herein have been prepared in accordance with generally
accepted accounting principles, which require the measurement of
financial position and operating results in terms of historical dollars
without considering changes in the relative purchasing power of money
over time due to inflation.
Unlike many industrial companies, substantially all of the assets and
virtually all of the liabilities of the Company are monetary in nature.
As a result, interest rates have a more significant impact on the
Company's performance than the general level of inflation. Over short
periods of time, interest rates may not necessarily move in the same
direction or in the same magnitude as inflation.
<PAGE>
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART II - Other Information
Item 1. Legal Proceedings
From time to time the Company or 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 financial position
or results of operations.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Stockholders
Not applicable
Item 5. Other information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
Not applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
February 13, 1998 /s/ GUY C. PINKERTON
Chairman, President and
Chief Executive Officer
February 13, 1998 /s/ RONALD L. SAPER
Executive Vice-President and
Chief Financial Officer
February 13, 1998 /s/ KEITH D. TAYLOR
Senior Vice-President and
Treasurer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from
consolidated statements of financial condition on December 31, 1997;
consolidated statements of operation for the three months ended
December 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 33,221
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 662,342
<INVESTMENTS-CARRYING> 540,979
<INVESTMENTS-MARKET> 554,356
<LOANS> 4,206,395
<ALLOWANCE> 23,615
<TOTAL-ASSETS> 5,713,308
<DEPOSITS> 2,982,240
<SHORT-TERM> 1,516,011
<LIABILITIES-OTHER> 128,295
<LONG-TERM> 350,000
0
0
<COMMON> 556,459
<OTHER-SE> 180,303
<TOTAL-LIABILITIES-AND-EQUITY> 5,713,308
<INTEREST-LOAN> 92,141
<INTEREST-INVEST> 24,091
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 116,232
<INTEREST-DEPOSIT> 39,200
<INTEREST-EXPENSE> 26,076
<INTEREST-INCOME-NET> 50,956
<LOAN-LOSSES> 159
<SECURITIES-GAINS> 745
<EXPENSE-OTHER> 10,800
<INCOME-PRETAX> 41,991
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,084
<EPS-PRIMARY> .57
<EPS-DILUTED> .56
<YIELD-ACTUAL> 8.12
<LOANS-NON> 18,542
<LOANS-PAST> 0
<LOANS-TROUBLED> 14,054
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 24,623
<CHARGE-OFFS> 1,203
<RECOVERIES> 36
<ALLOWANCE-CLOSE> 23,615
<ALLOWANCE-DOMESTIC> 20,501
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,114
</TABLE>
