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. .. . .. . .. . . March
31, 1999
[ ] 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 March 31, 1999 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)
(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 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:
April 30,
1999
Common stock, $1.00 par value
54,664,450
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 March 31, 1999 and September 30, 1998 . . . . .
. .
Page 3
Consolidated Statements of Operations for the three
and six months ended March 31, 1999 and 1998. . . . .
. .
Page 4
Consolidated Statements of Cash Flows for the
six months ended March 31, 1999 and 1998 . . . . . .
. . Page 5
Notes to Consolidated Financial Statements. . . . . .
. .
Page 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . .
. .
Page 8
PART II
Item 1. Legal Proceedings . . . . . . . . . . . . ..
. . . .
Page 14
Item 2. Changes in Securities. . . . . . . . . . . ..
. . . .
Page 14
Item 3. Defaults upon Senior Securities. . . . . . . ..
. . . .
Page 14
Item 4. Submission of Matters to a Vote of Stockholders ..
. . . . .
.
Page 14
Item 5. Other Information . . . . . . . . . . . . ..
. . . .
Page 14
Item 6. Exhibits and Reports on Form 8-K . . . . . . ..
. . . .
Page 14
Signatures . . . . . . . . . . . . . . . . .
.Page 15<PAGE>
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
. . . . . . . . . . . . . . . . .March 31, 1999
September 30,
1998
(In thousands, except per share data)
ASSETS
Cash. . . . . . . . . . . . . . . . . . . . . . $
23,426 $
22,215
Available-for-sale securities . . . . . . . . . 958,118
764,188
Held-to-maturity securities . . . . . . . . . . 370,238
445,871
Loans receivable. . . . . . . . . . . . . . . .4,155,921
4,143,525
Interest receivable . . . . . . . . . . . . . . 34,771
35,175
Premises and equipment, net . . . . . . . . . . 50,837
48,882
Real estate held for sale . . . . . . . . . . . 19,428
16,193
FHLB stock. . . . . . . . . . . . . . . . . . . 104,993
101,050
Costs in excess of net assets acquired. . . . . 50,611
53,639
Other assets. . . . . . . . . . . . . . . . . .
5,253
6,273
. . . . . . . . . . . . . . . . .$5,773,596
$5,637,011
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Customer accounts
Savings and demand accounts . . . . . . . .
$3,228,357
$3,071,175
Repurchase agreements with customers. . . .
105,162
85,027
. . . . . . . . . . . . . . . . . .3,333,519
3,156,202
FHLB advances . . . . . . . . . . . . . . . . . 955,500
1,356,500
Other borrowings, primarily securities sold under agreements to
repurchase
. . . . . . . . . . . . . . . . . . . . . . . .579,086
221,819
Advance payments by borrowers for taxes and insurance. .
20,890
25,332
Federal and state income taxes. . . . . . . . . 63,376
63,969
Accrued expenses and other liabilities. . . . .
47,041
46,017
. . . . . . . . . . . . . . . . . .4,999,412
4,869,839
Stockholders' equity
Common stock, $1.00 par value, 100,000,000 shares authorized;
62,090,321 and 56,423,961 shares issued; 55,898,729 and
51,446,129 shares outstanding. . . . . . . . 62,090
56,424
Paid-in capital . . . . . . . . . . . . . . . . 783,727
714,700
Valuation adjustment for available-for-sale securities, net of
taxes
25,000
. . . . . . . . . . . . . . . . . . . . . . . .35,000
Treasury stock, at cost; 6,191,592 and 4,977,832 shares. (
107,991) (
92,221)
Retained earnings . . . . . . . . . . . . . . .
11,358
53,269
. . . . . . . . . . . . . . . . . . 774,184
767,172
. . . . . . . . . . . . . . . . . .$5,773,596
$5,637,011
CONSOLIDATED FINANCIAL HIGHLIGHTS
Stockholders' equity per share. . . . . . . . .$ 13.85 $
13.56
Stockholders' equity to total assets. . . . . . 13.41%
13.61%
Loans serviced for others . . . . . . . . . . . $
56,595 $
73,606
Weighted average rates at period end
Loans and mortgage-backed securities . . . . 7.67%
7.98%
Investment securities* . . . . . . . . . . . 8.15
7.76
Combined rate on loans, mortgage-backed securities and
investment
securities
. . . . . . . . . . . . . . . . . . . . . . . . 7.69
7.96
Customer accounts. . . . . . . . . . . . . . 4.80
5.09
Borrowings . . . . . . . . . . . . . . . . . 5.20
5.50
Combined cost of customer accounts and borrowings . . . . .
. .
4.93 5.23
Interest rate spread . . . . . . . . . . . . 2.76
2.73
*Includes municipal bonds at tax equivalent yields WASHINGTON
FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Quarter Ended March 31, Six Months Ended March 31,
1999
. . . . . . . . 1998 1999 1998
(In
thousands, except per share data)
INTEREST INCOME
Loans. . . . . . . . . . . . $ 87,322 $ 91,659 $177,274
$183,800
Mortgage-backed securities . 21,016 16,739 39,882
34,078
Investment securities. . . . 4,923 6,533 10,498
13,285
113,261
. . . . . . . . . . 114,931 227,654 231,163
INTEREST EXPENSE
Customer accounts. . . . . . 39,744 38,198 80,488
77,398
FHLB advances and other borrowings . . 20,690 24,742
41,786
50,818
60,434
. . . . . . . . . . 62,940 122,274 128,216
Net interest income. . . . . 52,827 51,991 105,380
102,947
Provision for loan losses. . 204 172
383
331
Net interest income after provision for loan losses
52,623
51,819 104,997
. . . . . . . . . . 102,616
OTHER INCOME
Gain on sale of securities . 1,344 1,591 1,344
2,336
Other. . . . . . . . . . . . 2,141 1,383 5,568
2,531
3,485
. . . . . . . . . . . 2,974 6,912 4,867
OTHER EXPENSE
Compensation and fringe benefits . . . 6,844 6,237
13,479
12,054
Federal insurance premiums . 466 446 900
892
Occupancy expense. . . . . . 1,024 1,045 2,008
2,095
Other. . . . . . . . . . . . 3,727 3,809 7,144
7,296
12,061
. . . . . . . . . . .11,537 23,531 22,337
Gains on real estate owned, net. . . . 46
95
94 196
Income before income taxes . 44,093 43,351 88,472
85,342
Income taxes . . . . . . . . 15,566 15,389 31,627
30,296
NET INCOME . . . . . . . . . $ 28,527 $ 27,962 $ 56,845 $
55,046
PER SHARE DATA
Basic earnings per share . . $ .51 $ .48
$
1.01 $ .95
Diluted earnings per share . $ .51 $ .48
$
1.01 $ .94
Cash dividends . . . . . . . $ .22 $ .20
$
.44 $ .40
Weighted average number of shares outstanding,
including dilutive stock options . . 56,388,998
58,279,492 56,463,675 58,266,133
Return on average assets . . 2.00% 1.99% 2.01%
1.95%
<PAGE>
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six
Months Ended
March 31,
1999
1998
(In
thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income . . . . . . . . . . . . . . . . . . $
56,845
$ 55,046
Adjustments to reconcile net income to net cash provided by
operating
activities
Amortization of fees, discounts and premiums, net. (
14,373)
( 12,211)
Amortization of costs in excess of net assets acquired
3,028
. . . . . . . . . . . . . . . . . . . . 3,010
Depreciation . . . . . . . . . . . . . . . .
1,140
1,170
Gains on investment securities and real estate held for sale
( 1,438)
. . . . . . . . . . . . . . . . . . .( 2,531)
Decrease (increase) in accrued interest receivable
404
(330)
Increase in income taxes payable . . . . . .
2,522
7,105
FHLB stock dividends . . . . . . . . . . . . (
3,943)
( 3,712)
Decrease (increase) in other assets. . . . .
3,905
(23)
Increase (decrease) in accrued expenses and other liabilities
924
. . . . . . . . . . . . . . . ( 414)
Net cash provided by operating activities. . .
49,014
47,110
CASH FLOWS FROM INVESTING ACTIVITIES
Loans and contracts originated
Loans on existing property . . . . . . . . .
(491,348)
(328,344)
Construction loans . . . . . . . . . . . . .
(180,753)
(213,394)
Land loans . . . . . . . . . . . . . . . . . (
46,783)
( 34,223)
Loans refinanced . . . . . . . . . . . . . .
(118,546)
( 79,411)
.(837,430)
(655,372)
Savings account loans originated . . . . . . . (
1,958)
( 2,808)
Loan principal repayments. . . . . . . . . . .
849,517
706,766
Decrease in undisbursed loans in process . . . (
20,509)
( 5,097)
Loans purchased. . . . . . . . . . . . . . . . (
256)
( 868)
Purchase of available-for-sale securities. . .
(413,749)
(65,980)
Principal payments and maturities of available-for-sale
securities
. . . . . . . . . . . . . . . . . . . 195,924
47,599
Sales of available-for-sale securities . . . .
11,344
32,335
Principal payments and maturities of held-to-maturity securities
. . . . . . . . . . . . . . . . . . . .76,524
47,904
Proceeds from sale of real estate held for sale . .
6,476
7,080
Premises and equipment purchased, net . . . .
(3,095)
(1,800)
Net cash provided (used) by investing activities . .
(137,212)
109,759
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in customer accounts. . . . . . .
177,317
46,421
Decrease in short-term borrowings. . . . . . . (
43,733)
(173,054)
Repayments of long-term borrowings . . . . . .
- ---
(2,500)
Proceeds from exercise of common stock options
328
336
Proceeds from employee stock ownership plan. . 669
1,637
Treasury stock purchased . . . . . . . . . . .
(16,271)
---
Dividends. . . . . . . . . . . . . . . . . . . (
24,459)
( 22,950)
Decrease in advance payments by borrowers for taxes and insurance
. . . . . . . . . . . . . . . . . . .( 4,442) (
4,612)
Net cash provided (used) by financing activities . .
89,409
(154,722)
Increase in cash . . . . . . . . . . . . . . . 1,211
2,147
Cash at beginning of period. . . . . . . . . .
22,215
23,444
Cash at end of period. . . . . . . . . . . . . $
23,426
$ 25,591
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Noncash investing activities
Real estate acquired through foreclosure . . $
9,617
$ 5,459
Cash paid during the period for
Interest . . . . . . . . . . . . . . . . . .
123,728
130,569
Income taxes . . . . . . . . . . . . . . . .
28,871
27,000 <PAGE>
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, 1998 Consolidated Statement of Financial Condition
was derived
from
audited financial statements.
NOTE B - Cash Dividend Paid
Dividends per share increased to 22 cents for the quarter ended
March 31, 1999
compared with 20 cents for the same period one year ago. On
April 30, 1999
the
Company paid its 65th consecutive quarterly cash dividend.
NOTE C - Stock Dividend
On January 27, 1999, 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, 1999 which was distributed on February 26, 1999. All
previously reported
per
share amounts have been adjusted accordingly.
NOTE D - Comprehensive Income
On October 1, 1998, the Company adopted the provisions of
Statement of
Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income". The
standard
requires that comprehensive income and its components be
disclosed in the
financial
statements. The Company's comprehensive income includes all
items which
comprise net
income plus the unrealized holding gains on available-for-sale
securities. In
accordance with the provisions of SFAS No. 130, the Company's
total
comprehensive
income for the quarters ended March 31, 1999 and March 31, 1998
totaled
$23,527,000
and $27,962,000, respectively. The total comprehensive income
for the six
months
ended March 31, 1999 and March 31, 1998 totaled $46,845,000 and
$58,046,000,
respectively. The difference between the Company's net income
and total
comprehensive
income equals the change in the net unrealized gain on
securities
available-for-sale
during the applicable periods.
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 $56,845,000 55,993,508
$1.01
Diluted EPS
Income available to common stockholders
plus assumed conversions $56,845,000 56,463,675
$1.01
<PAGE>
GENERAL
Washington Federal, Inc. (the Company) is a savings and loan
holding company.
The
Company's primary operating subsidiary is Washington Federal
Savings (the
Association).
YEAR 2000
This discussion constitutes a "Year 2000 Readiness Disclosure"
within the
meaning of
the Year 2000 Information and Readiness Disclosure Act of 1998
and contains
forward-
looking statements that have been prepared on the basis of the
Company's best
judgment
and currently available information. These forward-looking
statements are
inherently
subject to significant business, third-party and regulatory
uncertainties and
contingencies, many of which are beyond the control of the
Company. In
addition,
these forward-looking statements are based on the Company's
current
assessments and
renovation plans, which are based on certain representations of
third-party
servicers
and are subject to change. Accordingly, there can be no
assurance that the
Company's
results of operations will not be adversely affected by
difficulties or
delays in the
Company's or third-party's Year 2000 readiness efforts. See
below for a
discussion
of factors that may cause such forward-looking statements to
differ from
actual
results.
Most existing computer programs use only two digits to identify
the year in a
date
field, making the assumption that the year's first two digits
will always be
19.
These programs were developed without consideration of the
impact of the
upcoming
change in the century. If not corrected, many computer
applications could
fail or
create erroneous results on or after January 1, 2000. For
example, if an
interest
calculation were made for the month of January 2000, but the
system assumed
the year
was 1900, the results could be materially erroneous.
A few years ago, the Company began to assess the Year 2000 issue,
including
upgrades
to its software and hardware. The Company's assessment
segregated computer
applications into three categories: mission critical systems,
secondary
systems and
embedded systems. The mission critical systems were identified
as those
systems
necessary to deliver our products to our customer base. Based on
this
assessment, the
Company implemented a plan to renovate and implement its
computer
applications by
December 31, 1998. As of December 31, 1998, 100% of the
renovation and
implementation
of mission critical systems had been completed. These mission
critical
applications,
which were all written internally, have been renovated and
tested by the
Company's
information systems department.
A full scale Year 2000 integration test, where computer clocks
were advanced
to
simulate year-end 1999 processing, January 2000 processing and
leap year
processing,
occurred in March 1999. The test , which was accomplished over a
weekend,
involved
representatives of each principal business unit of the Company.
All facets of
our
mission critical systems were exercised and the results of all
testing
matched the
predetermined output.
The Company's secondary systems are primarily personal
computer-based software
programs which provide financial data for internal use. Examples
of these
secondary
systems include payroll, fixed assets and accounts payable. Most
of these
systems
were written by third-party servicers and the Company relies on
their written
representations that their software is Year 2000 compliant.
The Company's embedded systems include items as diverse as the
computer chips
in the
heating, ventilation and air conditioning systems to office
building
elevators. The
Company has identified those systems and relies on written
representations of
the
third-party servicers.
Every two months, the Company reports to its Board of Directors
the progress
made in
addressing the Year 2000 issue, including time lines and
percentage of
completion.
Management met its target of December 31, 1998 to have its
systems renovated
and
implemented and validation testing of all mission critical
systems was
successfully
completed in March 1999. Management recently reported the
results of an
Office of
Thrift Supervision examination of the Company's Year 2000
preparedness and
compliance
issues to the Board of Directors, who found the report to be
satisfactory.
Through March 31, 1999, the Company has not incurred any material
incremental
costs
to become Year 2000 compliant. The Company's mission critical
systems have
been
renovated and tested by the already existing information systems
staff. Less
than $1
million has been spent on the Year 2000 project to date. The
Company
estimates the
total amount of time and money expended to become Year 2000
compliant will
have no
material impact on the Company's results of operations or
financial
condition.
Based on its current assessments and renovation plans, which are
based in part
on
certain representations of third-party servicers, the Company
does not expect
that
it will experience a significant disruption of its operations as
a result of
the
change to the new millennium. Although the Company has no reason
to conclude
that a
failure will occur, the most reasonably likely worst-case Year
2000 scenario
would
entail a disruption or failure of the Company's power supply or
voice and
data
transmission suppliers, a computer system, a third-party
servicer, or a
facility. If
such a failure were to occur, the Company would implement its
contingency
plans. The
Company continues enhancing its existing contingency plans to
service
customers in
case events beyond its control impact computer systems. While it
is
impossible to
quantify the impact of such a scenario, the most reasonably
likely worst-case
scenario would entail a diminishment of service levels, some
customer
inconvenience,
and additional costs from the contingency plan implementation,
which are not
currently estimable. While the Company has contingency plans to
address a
temporary
disruption in these services, there can be no assurance that any
disruption
or
failure will be only temporary, that the Company's contingency
plans will
function
as anticipated, or that the results of operations of the Company
will not be
adversely affected in the event of a prolonged disruption or
failure.
INTEREST RATE RISK
The Company accepts 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 March 31, 1999 the Company had a negative one year
maturity gap
of
approximately 44% of total assets.
The interest rate spread increased to 2.76% at March 31, 1999
from 2.73%at
September
30, 1998. The increase was, in large part, due to the continued
repricing of
maturing customer deposits and borrowed money at lower interest
rates. 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
26.6% of total assets at March 31, 1999, compared to 28.0% of
total assets at
September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net worth at March 31, 1999 was $774,184,000 or
13.4% of total
assets.
This is an increase of $7,012,000 from September 30, 1998 when
net worth was
$767,172,000 or 13.6% of total assets. The increase in the
Company's net
worth
includes $56,845,000 generated from net income. Net worth was
reduced by the
$24,459,000 of cash dividends paid, $10,000,000 of reduction in
the valuation
reserves for available-for-sale securities and stock repurchases
of
$16,271,000
during the six months ended March 31, 1999. For the six month
period ended
March 31,
1999, 744,700 shares of common stock were repurchased at an
average price of
$21.85
under the September 1998 common stock repurchase program.
Subsequent to March
31,
1999, the Board of Directors authorized an additional 2,700,000
shares
available for
repurchase. This leaves a total of 3.3 million shares available
for
repurchase under
all authorizations.
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 increased customer deposits.
The Company's cash and investment securities amounted to
$187,111,000, a
$69,117,000
decrease from six months ago. The decrease results primarily
from the
maturity of
$68,500,000 of investment securities which were not replaced as
the Company
continued
its emphasis on production of higher yielding loans.
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 and mortgage-backed 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
March 31,
1999, total liquidity was 15.90%.
CHANGES IN FINANCIAL CONDITION
Available-for-sale and held-to-maturity securities. The Company
purchased
$413,749,000
of mortgage-backed securities during the six month period, all of
which were
categorized as available-for-sale. As of March 31, 1999, the
Company had
unrealized
gains on available-for-sale securities of $25,000,000, net of
tax, which were
recorded as part of stockholders' equity.
Loans receivable. Loans receivable increased slightly during the
six-month
period to
$4,155,921,000 at March 31, 1999 from $4,143,525,000 at
September 30, 1998.
The net
loans receivable balance remained relatively flat despite a 28%
increase in
loan
originations to $837,430,000 for the six-months ended March 31,
1999 compared
with
the $655,372,000 for the same period one year ago.
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 March 31, 1999, the Company's recorded investment
in impaired
loans
was $6.9 million which had allocated reserves of $2.9 million.
Loans of $2.6
million
did not require reserves. The average balance of impaired loans
during the
quarter
was $16.3 million and interest income (cash received) from
impaired loans was
$99,000. For the six months ended March 31, 1999 the average
amount of
impaired loans
was $13.6 million and interest income (cash received) from
impaired loans was
$195,000.
Real estate held for sale. Real estate held for sale increased
$3,235,000
(20%) to
$19,428,000 at March 31, 1999 from $16,193,000 at September 30,
1998. This
increase
relates primarily to one large builder with loans totalling $4.9
million.
Despite the
increase in real estate held for sale, non-performing assets as
a percentage
of total
assets dropped from .44% at September 30, 1998 to .42% at March
31, 1999.
Costs in excess of net assets acquired. The Company periodically
monitors
costs in
excess of net assets acquired for potential impairment of which
there was
none at
March 31, 1999. The Company will continue to evaluate these
assets and, if
appropriate, provide for any diminuition in value of these
assets.
Customer accounts. Customer accounts increased $177,317,000, or
6% to
$3,333,519,000
at March 31, 1999 compared with $3,156,202,000 at September 30,
1998.
FHLB advances and other borrowings. Total borrowings decreased to
$1,534,586,000. See
Interest Rate Risk above.
RESULTS OF OPERATIONS
Net interest income increased $836,000 (2%) to $52,827,000 for
the March 1999
quarter
from $51,991,000 a year ago, while net interest income increased
$2,433,000
(2%) to
$105,380,000 for the six months ended March 31, 1999 from the
$102,947,000
for the
same period of 1998. The net interest spread was 2.76% at March
31, 1999
compared to
2.69% at December 31, 1998 and 2.79% at March 31, 1998. This
increase
resulted
largely from the increase in amortization of deferred fees and
discounts due
to the
high prepayments in the loan and mortgage-backed securities
portfolio.
Interest income on loans decreased $4,337,000 (5%) to $87,322,000
for the
quarter
ended March 31, 1999 from $91,659,000 for the same period one
year ago. For
the six
months ended March 31, 1999 interest on loans decreased
$6,526,000 (4%) to
$177,274,000 from $183,800,000 for the same period one year ago.
The average
balance
of loans decreased to $4,139,356,000 (1%) for the six months
ending March 31,
1999
from $4,189,138,000 for the six months ending March 31, 1998.
Average
interest rates
on loans decreased to 7.83% at March 31, 1999 from 8.20% one
year ago.
Interest income on mortgage-backed securities increased
$4,277,000 (26%) to
$21,016,000 for the quarter ended March 31, 1999 versus the
$16,739,000 for
the
quarter one year ago. Interest on mortgage-backed securities
increased
$5,804,000
(17%) to $39,882,000 for the six months ended March 31, 1999
compared with
the
$34,078,000 for the same period one year ago. The average
balance of
mortgage-backed
securities increased to $1,087,138,000 (19%) for the six months
ended March
31, 1999
from $916,441,000 for the six months ended March 31, 1998 as the
Company
purchased
$413,749,000 in mortgage-backed securities to supplement current
loan
production.
Discount amortization increased 50% to $2,824,000 for the six
months ended
March 31,
1999 from $1,879,000 for the same period one year ago. The
weighted average
yield
of 7.07% at March 31, 1999 was down from the 7.62% at March 31,
1998.
Interest on investments decreased $1,610,000 (25%) to $4,923,000
for the
quarter ended
March 31, 1999 versus the $6,533,000 for the quarter one year
ago. Interest
on
investments decreased $2,787,000 (21%) to $10,498,000 for the
six months
ended March
31, 1999 compared with the $13,285,000 for the same period one
year ago. The
average
balance of investments decreased to $301,927,000 (22%) for the
six months
ended March
31, 1999 from $387,146,000 for the six months ended March 31,
1998. The
weighted
average yield was 8.15% at March 31, 1999 compared to 7.64% at
March 31,
1998.
Interest expense on customer accounts increased $1,546,000 (4%)
to $39,744,000
for the
March 1999 quarter from $38,198,000 for the March 1998 quarter.
Interest
expense on
customer accounts increased $3,090,000 (4%) to $80,488,000 for
the six months
ended
March 31, 1999 versus $77,398,000 for the same period one year
ago. The
increase
related to the increase in average customer accounts from
$3,002,159,000 to
$3,242,397,000 (8%) for the six months ended March 31, 1999 and
1998,
respectively.
The average cost of customer accounts decreased to 4.80% at
quarter end
compared to
the 5.14% one year ago.
RESULTS OF OPERATIONS(continued)
Interest on FHLB advances and other borrowings decreased
$4,052,000 (16%) to
$20,690,000 for the March 1999 quarter compared with the
$24,742,000 for the
March
1998 quarter. The six-month figures decreased $9,032,000 (18%)
to
$41,786,000
compared with the $50,818,000 for the same period one year ago.
The decrease
was due
to a reduction in the average total borrowings from
$1,811,874,000 to
$1,555,179,000
(14%) for the six month periods ended March 31, 1999 and 1998,
respectively.
The
average rates paid at March 31, 1999 decreased to 5.20% versus
5.53% at March
31,
1998.
Other income increased $511,000 (17%) to $3,485,000 for the March
1999 quarter
compared with the $2,974,000 for the March 1998 quarter. Other
income
increased
$2,045,000 (42%) to $6,912,000 for the six months ended March
31, 1999 versus
$4,867,000 for the same period one year ago. Gains on the sale
of
available-for-sale
securities totalled $1,344,000 and for both the quarter and six
months ended
March
31, 1999. Gains on the sale of available-for-sale securities
totalled
$1,591,000 and
$2,336,000 for the quarter and six month period ended March 31,
1998,
respectively.
The increase in other income included several non-recurring real
estate
transactions,
the largest of which provided the Company $1 million of pre-tax
income during
the
December 1998 quarter.
Other expense increased $529,000 (4%) and $1,366,000 (6%),
respectively, for
the
quarter and six months ended March 31, 1999 after adjusting for
a $5,000 and
$172,000
increase in deferred loan origination costs associated with
higher loan
volume. Other
expense for the quarter and six months ended March 31, 1999
equalled .84% and
.82%,
respectively, of average assets compared to .82% and .79%,
respectively, for
the same
periods one year ago. The number of staff, including part-time
employees on
a full-
time equivalent basis, were 686 at March 31, 1999 and 656 at
March 31, 1998.
Income taxes increased $177,000 (1%) and $1,331,000 (4%) for the
quarter and
six
months ended March 31, 1999, respectively, when compared to the
same periods
one year
ago due to higher taxable income. The effective tax rate was
35.7% for the
six-month
period ended March 31, 1999 and 35.5% for the same period ended
March 31,
1998.
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 Association are monetary in nature.
As a result,
interest
rates have a more significant impact on the Association'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>
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
The Annual Meeting of Stockholders of Washington Federal, Inc.
was held on
January 27,
1999. Three nominees for election as Directors, Anna C.
Johnson, Richard C.
Reed and
Charles R. Richmond were elected for three-year terms. The
votes cast for
Anna C.
Johnson were 45,344,275 shares. The votes cast for Richard C.
Reed were
45,379,994
shares . The votes cast for Charles R. Richmond were 45,427,506
shares.
The stockholders ratified the appointment of Deloitte & Touche
LLP as
Washington
Federal, Inc.'s independent public accountants for fiscal 1999
with
45,681,607 votes
cast for the proposal.
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.
/s/ Guy C. Pinkerton
May 14, 1999 GUY C. PINKERTON
Chairman and
Chief Executive Officer
/s/ Ronald L. Saper
May 14, 1999 RONALD L. SAPER
Executive Vice-President and
Chief Financial Officer
/s/ Joseph R. Runte
May 14, 1999 JOSEPH R. RUNTE
Vice-President and
Controller
<PAGE>
<PAGE>
<PAGE>
