<PAGE> 1
EXHIBIT 13
WASHINGTON FEDERAL, INC.
ANNUAL REPORT 2000
425 Pike Street, Seattle, WA 98101
TABLE OF CONTENTS
<TABLE>
<S> <C>
Financial Highlights 3
To Our Stockholders 4
Management's Discussion 6
Selected Financial Data 10
Financial Statements 12
Notes to Financial Statements 16
Accountant's Report 31
General Information 31
Directors, Officers, Offices 33
</TABLE>
A SHORT HISTORY
Washington Federal, Inc. (the Company) is a savings and loan holding company
headquartered in Seattle, Washington. Its principal subsidiary is Washington
Federal Savings (the Association) which operates 108 branches in six Western
states.
The Association had its origin on April 24, 1917 as Ballard Savings and Loan
Association. In 1935, the state-chartered Association converted to a federal
charter, became a member of the Federal Home Loan Bank System and obtained
federal insurance. In 1958, Ballard Federal Savings and Loan Association merged
with Washington Federal Savings and Loan Association of Bothell, and the latter
name was retained for its wider geographic acceptance. In 1971, Seattle Federal
Savings and Loan Association, then with three offices, was merged into the
Association, and at the end of 1978, was joined by the 10 offices of First
Federal Savings and Loan Association of Mount Vernon.
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On November 17, 1982, the Association converted from a federal mutual to a
federal stock association. In 1987 and 1988, acquisitions of United First
Federal, Provident Federal Savings and Loan, and Northwest Federal Savings and
Loan, all headquartered in Boise, Idaho, added 28 Idaho offices to the
Association. In 1988, the acquisition of Freedom Federal Savings and Loan
Association in Corvallis, Oregon, added 13 Oregon offices, followed in 1990 by
the eight Oregon offices of Family Federal Savings Association.
In 1991, the acquisition of First Federal Savings and Loan Association of Idaho
Falls, Idaho, added three branches to our system. That same year, we acquired
the deposits of First Western Savings Association of Las Vegas, Nevada, doing
business in Portland and Eugene, Oregon, as Metropolitan Savings Association. In
1992, we changed the name of all our Oregon division branches from Freedom
Federal Savings to Washington Federal Savings and shortened our original
corporate name to Washington Federal Savings. In 1993, the Association completed
its purchase of First Federal Savings Bank of Salt Lake City, Utah, which
provided 10 branches in the state. Then, during 1994, we expanded into Arizona
and began operating five branch offices in Tucson. In 1995, the stockholders
voted to approve a reorganization whereby Washington Federal Savings became a
wholly-owned subsidiary of a newly formed holding company, Washington Federal,
Inc. The Company purchased West Coast Mutual Savings Bank which included its one
branch office in Centralia, Washington. Also during the year, we sold our
Burley, Idaho branch office and opened three new offices in Washington, two more
in Tucson, Arizona, and one each in Oregon and Utah. In 1996, we opened one new
office in Oregon, one in Washington, and three in Phoenix, Arizona. In November
1996, we purchased Metropolitan Bancorp of Seattle, Washington, which added
eight branches in the Puget Sound region. In 1997, we opened three new offices,
one each in: Portland, Oregon; Tucson, Arizona; and in Phoenix, Arizona. We also
closed one of our offices in Idaho Falls, Idaho, consolidating the deposits into
our main Idaho Falls office. In 1998, we opened two new branches in Phoenix,
Arizona, and one in Portland, Oregon. We also consolidated two Tucson, Arizona
offices into one. In 1999, we consolidated two offices into one in Salt Lake
City, Utah, and opened a new office in Riverton, Utah. We also opened one new
office in Phoenix, Arizona.
In 2000, we consolidated two offices into one in Boise, Idaho, sold our Mountain
Home branch, and opened one new branch each in Phoenix and Tucson, Arizona. We
also opened our first branch in Las Vegas, Nevada.
The Association obtains its funds primarily through savings deposits from the
general public, from repayments of loans and from borrowings and retained
earnings. These funds are used largely to make first lien loans to borrowers for
the purchase of new and existing homes, the acquisition and development of land
for residential lots, the construction of homes, the financing of other real
estate, and for investment in obligations of the U.S. government, its agencies,
and municipalities. The Association also has a wholly-owned subsidiary, First
Insurance Agency, Inc., which provides general insurance to the public.
PLEASE NOTE: Starting with the 2001 fiscal year, Washington Federal will no
longer produce or distribute quarterly reports of financial results. We have
found that the printed report is not as timely as most shareholders would
desire, which calls into question the cost-effectiveness of printing and mailing
the report. Alternatively, you may stop by any one of our branches for a copy of
the most recent press release, or you can visit our website at
www.washingtonfederal.com under "For Investors."
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FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
September 30, 2000 1999 % Change
------------- ---------- ---------- --------
(In thousands, except per share data)
<S> <C> <C> <C>
Assets $6,719,841 $6,163,503 +9%
Investment securities 142,992 141,753 +1
Loans receivable 4,949,235 4,378,728 +13
Mortgage-backed securities 1,328,105 1,352,916 -2
Customer accounts 3,465,270 3,379,502 +3
Federal Home Loan Bank advances
and other borrowings 2,363,509 1,908,257 +24
Stockholders' equity 759,165 750,023 +1
Net income 105,679 114,286 -8
Diluted earnings per share 2.00 2.05 -2
Dividends per share .98 .90 +9
Stockholders' equity per share 14.57 13.83 +5
Shares outstanding 52,121 54,232 -4
Return on average stockholders' equity 14.27% 15.47% --
Return on average assets 1.65% 1.99% --
</TABLE>
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TO OUR STOCKHOLDERS
We are pleased with the Company's performance for the year considering it was a
difficult year as the short-term Federal Fund interest rate increased from 43/4%
to 61/2% since June 30, 1999. This has resulted in an inverted yield curve as
short-term treasury yields are higher than the 10- and 30-year treasury yields.
Although our interest rate spread of 2.04% at September 30, 2000 was the lowest
since we became a public company in 1982, our earnings per share were the second
highest. As short-term yields stabilize or go down, our long-term earnings
growth should return.
For this past year, earnings were $105,679,000 or $2.00 per share compared to
the prior year's earnings of $114,286,000 or $2.05 per share, a 2.4% decline in
earnings per share. The negative impact of the Federal Fund interest rate
increase and narrowing of our interest rate spread was mostly offset by
increasing our outstanding mortgage loans and the repurchase of capital stock.
During the year, we originated 8,326 mortgage loans totaling $1.52 billion. This
near-record loan production, combined with a reduction in refinances and
payoffs, resulted in a $570 million or 13% increase in outstanding mortgage
loans from $4.38 billion to $4.95 billion. In the prior year, we originated
10,467 real estate loans for a net increase of $247 million. During the fiscal
year, we also repurchased 2.46 million shares of our outstanding common stock at
an average price of $19.68 per share. We intend to continue to repurchase our
common stock when the opportunities arise.
The fiscal year produced a return on average assets of 1.65% and a return on
stockholders' equity of 14.27%. Stockholders' equity at September 30, 2000 was
$759 million or 11.30% of total assets compared to $750 million or 12.17% of
total assets at the beginning of the year. The lower than normal increase in our
stockholders' equity resulted principally from the above mentioned repurchase of
Washington Federal stock and the payment of cash dividends of $51 million.
Washington Federal's earnings and capital ratios continue near the top in the
nation for all financial institutions. Our total assets increased $556 million
or 9% during the year to $6.7 billion.
Our operating expense ratio for the year was .73% and our efficiency ratio
(total operating expense divided by net interest income plus other income) was
19.2%. Both of these figures are excellent and less than one-half the industry
average.
Our Company has kept its same philosophies and positive results for many years.
We try to keep everything we do as simple as possible while providing the best
possible service to customers on the products we offer. Our business, in very
basic terms, is to attract savings deposits from the general public and to
invest these funds profitably, primarily in loans secured by residential real
estate. Most of our lending is for single-family construction and purchase,
although in recent years we have been developing our origination capabilities in
smaller multi-family loans. Virtually all of our longer-term loans contain a
"due on sale" clause which gives us the right to renegotiate the rate and terms
if the underlying collateral is sold. A breakdown of our loan portfolio can be
found in the "Notes to Consolidated Financial Statements" included in this
report.
Our deposits for the year increased $86 million or 3%. We offer a complete line
of savings products, including various certificates of deposit, passbook
accounts, insured money market accounts with passbooks or statements and
checking accounts with higher than market interest rates. Our customers enjoy
the passbook option and can open an account for a child or grandchild to teach
the old-fashioned satisfaction that comes from watching savings grow.
During the year we consolidated one branch and sold a second branch in Idaho,
opened two branches in Arizona and opened our first branch in Las Vegas, Nevada.
We now have 108 offices with 39 in Washington, 17 in Idaho, 24 in Oregon, 11 in
Utah, 16 in Arizona and one in Nevada. We have four additional sites in Arizona
in different stages of development and continue to move towards opening our
first office in Dallas, Texas. We also are looking for additional sites in
Portland, Oregon and Nevada as we continue our expansion in these markets. We
will also consider acquisition opportunities when appropriate and priced fairly.
We are near the completion _of the review of our computer system that was
originally installed in 1978. To that end, we plan to install new branch teller
equipment, replacing equipment that we have used for over 20 years. This new
hardware, in addition to improvements in our software, will enable us to take
advantage of the rapid changes in technology and provide better and faster
service to our customers.
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On October 1, 2000 the title of Chief Executive Officer was transferred to Roy
M. Whitehead. I feel confident that Roy's leadership and banking and thrift
experience, along with the management team we are building, will lead Washington
Federal to new levels of success. I will continue as Chairman and try to
contribute to these efforts as needed.
During the year, Larry Cierpiszewski retired from his position as Executive Vice
President. Larry had worked with us for eighteen years, the last eight serving
on the Executive Management Committee. We thank him for all he has done to make
our Company as successful as it has been and wish him many happy years in
retirement.
This will be the last letter to stockholders written by me, so I want to take
this opportunity to thank my fellow employees and our directors and stockholders
for all the support and encouragement they have shown me during my 35 years as
an employee of Washington Federal. It has truly been an exciting, rewarding and
pleasurable experience.
I look forward to seeing you at our annual meeting to be held on Wednesday,
January 24, 2001, at 2:00 p.m. at the Sheraton Hotel in Seattle.
Sincerely,
Guy C. Pinkerton
Chairman of the Board
President Roy M. Whitehead (left) assumed CEO duties from Chairman Guy C.
Pinkerton (right) on October 1, 2000.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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).
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
than the short-term characteristics of its liabilities of customer accounts and
borrowed money. At September 30, 2000, the Company had approximately
$3,182,000,000 more liabilities subject to repricing in the next year than
assets subject to repricing, which amounted to a negative maturity gap of 47% of
total assets. The Company's interest rate risk approach has never resulted in
the recording of a monthly operating loss.
The Company experienced a significant decline in interest rate spreads in fiscal
2000. Spreads narrowed during the past several months as the Federal Reserve
raised short-term interest rates from 4.75% in June 1999 to 6.50% in May 2000.
The year closed with a 2.04% interest rate spread, down from 2.72% at the
beginning of the year. During this phase of the interest rate cycle, the Company
chose to leverage its balance sheet and increase its asset size. As a result,
Federal Home Loan Bank (FHLB) advances and other borrowed money increased to an
equivalent of 35.2% of total assets at September 30, 2000 compared to 31.0% of
total assets at September 30, 1999.
ASSET QUALITY
The Company maintains an allowance to absorb losses inherent in the loan
portfolio. The allowance is based on ongoing, quarterly assessments of the
probable and estimable losses inherent in the loan portfolio. In analyzing the
existing loan portfolio, the Company applies specific loss percentage factors to
the different loan types. The loss percentages are based on current economic
conditions, historical loss experience and the changes in the size and
composition of the loan portfolio.
Income property loans, builder construction loans and certain other loans are
reviewed on an individual basis. They are reviewed to assess the ability of the
borrowers to continue to service all of their principal and interest
obligations. If the loans show signs of weakness, they will be downgraded, and
if warranted, placed on nonaccrual status. The Company has an Asset Quality
Review Committee that reports the results of their internal reviews to the Board
of Directors on a quarterly basis.
Non-performing assets increased to $31.4 million or .47% of total assets at
September 30, 2000 compared to $21.3 million or .35% of total assets at
September 30, 1999. These ratios are low compared to others and reflect the
excellent economic conditions within the Company's marketplace.
LIQUIDITY AND CAPITAL RESOURCES
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The Company's net worth at September 30, 2000, was $759,165,000 or 11.3% of
total assets. This is an increase of $9,142,000 from September 30, 1999 when net
worth was $750,023,000 or 12.2% of total assets. The ratio of net worth to total
assets remains at a high level despite the continuance of a stock repurchase
plan during fiscal 2000 and the distribution of 48.6% of earnings in the form of
cash dividends.
The Company's net worth declined due to $51,310,000 of cash dividends paid,
$2,000,000 of depreciation in the valuation reserve for available-for-sale
securities and stock repurchases of $48,485,000; however, net worth was
increased by $105,679,000 generated from net income and $5,258,000 of proceeds
received from the exercise of common stock options and purchases by the Employee
Stock Ownership Plan. During fiscal 2000, a total of 2,464,000 shares of common
stock were repurchased at an average price of $19.68.
Washington Federal's percentage of net worth to total assets is among the
highest in the nation and is approximately three times the minimum required
under Office of Thrift Supervision (OTS) regulations (see Note O). Management
believes this strong net worth position will help protect the Company against
interest rate risk and will enable it to compete more effectively for controlled
growth through acquisitions and customer deposit increases.
Customer accounts increased $85,768,000 or 2.5% from a year ago, largely due to
branch expansion in Nevada and Arizona, increased public funds activity and
several successful new account marketing campaigns.
The Company's cash and investment securities amounted to $171,278,000 at
September 30, 2000, a slight increase from $166,790,000 a year ago. Few
investment securities matured during the year and the Company continued to
emphasize origination of higher yielding loans.
The minimum liquidity levels of the Association are governed by the regulations
of the Office of Thrift Supervision. 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
4%. At September 30, 2000, total regulatory liquidity was 4.61%.
CHANGES IN FINANCIAL POSITION
Available-for-sale and held-to-maturity securities. The Company purchased
$185,048,000 of mortgage-backed and investment securities, almost all of which
have been categorized as available-for-sale.
The Company had $40,988,000 of sales of securities resulting in net realized
gains of $4,058,000. All sales were mortgage-backed securities which were
categorized as available-for-sale. As of September 30, 2000, the Company had
unrealized gains in its available-for-sale portfolio of $3,000,000, net of tax,
which are recorded as part of stockholders' equity.
Loans receivable. Loans receivable increased 13.0% during fiscal 2000 to
$4,949,235,000 at September 30, 2000, from $4,378,728,000 a year earlier. The
loans receivable balance increased substantially due to a near-record level of
loan originations totaling $1,522,290,000 despite a 14.0% decrease from fiscal
1999 which represented the Company's largest refinance period in its history.
Real estate held for sale. The balance at September 30, 2000, was $17,416,000, a
slight increase from $16,679,000 reported one year ago.
FHLB stock. FHLB stock amounted to $116,314,000 at September 30, 2000 compared
with $108,844,000 one year ago as the Company received $7,470,000 in stock
dividends during the year.
Costs in excess of net assets acquired. As of September 30, 2000, costs in
excess of net assets acquired totaled $41,577,000. The Company periodically
monitors these assets for potential impairment in accordance with SFAS No. 121,
"Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
As of September 30, 2000, there was
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no impairment of costs in excess of net assets acquired. The Company will
provide for any diminution in value of these assets should an impairment be
identified.
Customer accounts. Customer accounts at September 30, 2000, were $3,465,270,000
compared with $3,379,502,000 at September 30, 1999, a 2.5% increase. See
"Liquidity and Capital Resources" above.
FHLB advances and other borrowings. Total borrowings increased 23.9% to
$2,363,509,000. See "Interest Rate Risk" above.
RESULTS OF OPERATIONS
GENERAL
Fiscal 2000 net income decreased 8% from fiscal 1999. See Note S, "Selected
Quarterly Financial Data (Unaudited)" which highlights the quarter-by-quarter
results for the years ended September 30, 2000 and 1999.
<TABLE>
<CAPTION>
Dec 31 Mar 31 Jun 30 Sep 30 Dec 31 Mar 31 Jun 30 Sep 30
1998 1999 1999 1999 1999 2000 2000 2000
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest rate on loans and
mortgage-backed securities .... 7.79% 7.67% 7.65% 7.66% 7.70% 7.76% 7.86% 7.90%
Interest rate on
investment securities* ........ 7.90 8.15 8.04 8.03 8.11 7.83 7.83 7.82
Combined .............. 7.80 7.69 7.67 7.68 7.72 7.76 7.86 7.90
Interest rate on
customer accounts ............. 4.99 4.80 4.70 4.71 4.84 4.95 5.32 5.57
Interest rate on
borrowings .................... 5.37 5.20 5.30 5.40 5.56 5.85 6.30 6.29
Combined ................. 5.11 4.93 4.89 4.96 5.10 5.29 5.72 5.86
Interest rate spread .......... 2.69% 2.76% 2.78% 2.72% 2.62% 2.47% 2.14% 2.04%
</TABLE>
*Includes municipal bonds at tax-equivalent rates.
The interest rate spread declined during fiscal 2000 from 2.72% at September 30,
1999 to 2.04% at September 30, 2000.
COMPARISON OF FISCAL 2000 RESULTS WITH FISCAL 1999
Net interest income decreased $12,571,000 (6%) in fiscal 2000 over fiscal 1999
largely due to increases in short- term interest rates which the Federal Reserve
raised 175 basis points between June 1999 and May 2000.
Interest on loans and mortgage-backed securities increased $44,328,000 (10%) in
fiscal 2000 from 1999. The increase is largely a result of the increase in
earning asset volumes as the Company originated $1,522,290,000 in loans with
refinance activity slowing dramatically from the prior year when the Company
originated a record $1,769,612,000 in loans. Average interest rates on loans and
mortgage-backed securities increased to 7.90% from 7.66% one year ago.
Interest and dividends on investment securities decreased $1,878,000 (10%) in
fiscal 2000 from fiscal 1999. The weighted average yield declined to 7.82% at
September 30, 2000 compared with 8.03% at September 30, 1999. The combined
investment securities and FHLB stock portfolio increased slightly to
$259,306,000 at September 30, 2000 versus $250,597,000 one year ago.
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Interest on customer accounts increased 8% to $172,735,000 for fiscal 2000 from
$159,942,000 for fiscal 1999. The increase related to an increase in customer
accounts to $3,465,270,000 from $3,379,502,000 the prior year, as well as the
average cost of customer accounts which increased to 5.57% at year end compared
to 4.71% one year ago.
Interest on FHLB advances and other borrowings increased $42,228,000 (50%) in
fiscal 2000 over fiscal 1999. This increase was partially due to an increase in
average borrowings from $1,578,352,000 to $2,115,423,000. The average rates paid
increased to 6.29% at September 30, 2000 versus 5.40% at September 30, 1999.
The provision for loan losses was not necessary during fiscal 2000 as compared
to $684,000 in fiscal 1999 reflecting management's historical conservative
lending philosophy. Non-performing assets remained low at $31,393,000 or .47% of
total assets at September 30, 2000 compared with $21,300,000 or .35% of total
assets at September 30, 1999. Management continued to maintain the allowance for
loan losses at current levels which, at $20,831,000 or 66% of non-performing
assets, are within an acceptable range of estimated losses, yet conservative
compared with others in the industry. The lack of provision is reflective of the
excellent economic conditions within the Company's marketplace during fiscal
2000.
Other income decreased $2,288,000 (18%) in fiscal 2000 from fiscal 1999. Net
gains on the sale of available-for-sale securities totaled $4,058,000 in fiscal
2000 compared to $2,747,000 in fiscal 1999. Other income included several
non-recurring transactions in fiscal 1999, the largest of which provided the
Company $2,223,000 of pre-tax income during the year.
Other expense increased $545,000 (1%) in fiscal 2000 over fiscal 1999. This
minimal increase resulted from general inflationary increases offset by lower
deposit insurance premiums which declined $823,000, as well as a reduction in
staff through attrition. Personnel, including part-time employees considered on
a full-time equivalent basis, declined to 676 at September 30, 2000 compared to
700 staff at September 30, 1999. The branch network increased to 108 offices at
September 30, 2000 versus 107 offices one year ago. Other expense for fiscal
2000 equaled .73% of average assets compared with .80% in fiscal 1999.
Income taxes decreased $5,295,000 (8%) in fiscal 2000. The effective tax rate
was 35.25% for fiscal 2000 compared with 35.50% for fiscal 1999.
COMPARISON OF FISCAL 1999 RESULTS WITH FISCAL 1998
Net interest income increased $2,716,000 (1%) in fiscal 1999 over fiscal 1998
due largely to an increase in the balance sheet.
Interest on loans and mortgage-backed securities increased $1,360,000 (1%) in
fiscal 1999 from 1998. The increase was a result of the increase in earning
asset volumes as the Company originated $1,769,612,000 in loans compared to
$1,454,232,000 in the prior fiscal year. Average interest rates on loans and
mortgage-backed securities declined to 7.66% from 7.98% one year before.
Interest and dividends on investment securities decreased $6,387,000 (25%) in
fiscal 1999 from fiscal 1998. The weighted average yield improved to 8.03% at
September 30, 1999 compared with 7.76% at September 30, 1998. The combined
investment securities and FHLB stock portfolio decreased to $250,597,000 at
September 30, 1999 versus $335,063,000 the prior year.
Interest on customer accounts increased 2% to $159,942,000 for fiscal 1999 from
$156,099,000 for fiscal 1998. The increase largely related to the increase in
customer accounts to $3,379,502,000 from $3,156,202,000 the prior year. The
average cost of customer accounts decreased to 4.71% at year end compared to
5.09% one year ago.
Interest on FHLB advances and other borrowings decreased $11,586,000 (12%) in
fiscal 1999 from fiscal 1998. This decrease was partially due to a reduction in
average borrowings from $1,712,971,000 to $1,578,352,000. The average rates paid
decreased to 5.40% at September 30, 1999 versus 5.50% at September 30, 1998.
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The provision for loan losses during fiscal 1999 was $684,000 compared with
$740,000 in fiscal 1998 which reflected the Company's minimal levels of
non-performing assets. Non-performing assets declined to $21.3 million or .35%
of total assets at September 30, 1999 compared with $24.8 million or .44% of
total assets at September 30, 1998. Although the provision declined, we
continued to maintain our allowance for loan losses at levels which, at $21.9
million or 1.03% of non-performing assets, were within an acceptable range of
estimated losses and low compared with others in the industry. Our provision was
reflective of the excellent economic conditions within the Company's marketplace
during fiscal 1999.
Other income increased $1,633,000 (15%) in fiscal 1999 over fiscal 1998. Net
gains on the sale of available-for-sale securities totaled $2,747,000 in fiscal
1999 compared to $5,560,000 in fiscal 1998. Other income included several
non-recurring transactions, the largest of which provided the Company $2.2
million of pre-tax income during the year.
Other expense increased $985,000 (2%) in fiscal 1999 over fiscal 1998. The
increase was primarily due to an increase in compensation expense which resulted
from branch network expansion and general inflationary increases. The branch
network increased to 107 offices at September 30, 1999 versus 106 offices at
September 30, 1998. Other expense for fiscal 1999 equaled .80% of average assets
compared with .81% in fiscal 1998, while the number of staff, including
part-time employees on a full-time equivalent basis, amounted to 700 and 677 at
September 30, 1999 and 1998, respectively.
Income taxes increased $846,000 (1%) in fiscal 1999. The effective tax rate was
35.5% for fiscal 1999 compared with 35.6% for fiscal 1998.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and related Notes presented herein have
been prepared in accordance with generally accepted accounting principles, which
require, to a large extent, 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.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended September 30, 2000 1999 1998 1997 1996
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Interest income $498,027 $455,577 $460,604 $459,007 $404,211
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C> <C>
Interest expense 299,511 244,490 252,233 257,447 228,745
Net interest income 198,516 211,087 208,371 201,560 175,466
Provision for loan losses -- 684 740 813 3,828
Other income 10,377 12,665 11,032 5,077 5,917
Other expense 45,714 45,987 44,878 42,486 53,105
Income before income taxes 163,179 177,081 173,785 163,338 124,450
Income taxes 57,500 62,795 61,949 58,288 44,555
Net income $105,679 $114,286 $111,836 $105,050 $ 79,895
Per share data
Basic earnings per share $ 2.01 $ 2.06 $ 1.94 $ 1.85 $ 1.43
Diluted earnings per share $ 2.00 $ 2.05 $ 1.92 $ 1.83 $ 1.41
Cash dividends $ .98 $ .90 $ .82 $ .74 $ .68
</TABLE>
<TABLE>
<CAPTION>
September 30, 2000 1999 1998 1997 1996
(In thousands)
<S> <C> <C> <C> <C> <C>
Total assets $6,719,841 $6,163,503 $5,637,011 $5,719,589 $5,114,978
Loans and mortgage-backed securities 6,277,340 5,731,644 5,119,571 5,137,905 4,589,621
Investment securities 142,992 141,753 234,013 289,750 299,006
Customer accounts 3,465,270 3,379,502 3,156,202 2,978,031 2,480,220
FHLB advances 1,209,000 1,454,000 1,356,500 1,601,000 1,162,000
Other borrowings 1,154,509 454,257 221,819 303,544 797,549
Stockholders' equity 759,165 750,023 767,172 717,745 577,702
Number of
Customer accounts 191,343 189,419 184,832 180,957 160,968
Mortgage loans 41,741 40,104 40,615 41,820 39,570
Offices 108 107 106 104 93
</TABLE>
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30, 2000 1999
----------- -----------
(In thousands, except per share data)
<S> <C> <C>
ASSETS
Cash $ 28,286 $ 25,037
Available-for-sale securities, amortized cost $1,173,463 and $1,161,917 1,178,464 1,169,917
Held-to-maturity securities, fair value $292,264 and $327,002 292,633 324,752
Loans receivable, net 4,949,235 4,378,728
Interest receivable 40,700 36,521
Premises and equipment, net 50,487 50,110
Real estate held for sale 17,416 16,679
FHLB stock 116,314 108,844
Costs in excess of net assets acquired 41,577 47,583
Other assets 4,729 5,332
$ 6,719,841 $ 6,163,503
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Customer accounts
Savings and demand accounts $ 3,375,036 $ 3,291,857
Repurchase agreements with customers 90,234 87,645
----------- -----------
3,465,270 3,379,502
FHLB advances 1,209,000 1,454,000
Other borrowings, primarily securities sold under agreements to repurchase 1,154,509 454,257
Advance payments by borrowers for taxes and insurance 29,093 26,107
Federal and state income taxes, including net deferred liabilities of $49,999 and $54,012 53,012 52,504
Accrued expenses and other liabilities 49,792 47,110
----------- -----------
5,960,676 5,413,480
Stockholders' equity
Common stock, $1.00 par value, 100,000,000 shares authorized, 62,295,691 and 62,191,540
shares issued; 52,120,932 and 54,232,061 shares outstanding 62,296 62,192
Paid-in capital 785,745 785,031
Accumulated other comprehensive income, net of tax 3,000 5,000
Treasury stock, at cost; 10,174,759 and 7,959,479 shares (190,018) (146,186)
Retained earnings 98,142 43,986
759,165 750,023
----------- -----------
$ 6,719,841 $ 6,163,503
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements
12
<PAGE> 13
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended September 30, 2000 1999 1998
------------------------ ------------ ------------ ------------
(In thousands, except per share data)
<S> <C> <C> <C>
INTEREST INCOME
Loans $ 384,851 $ 353,930 $ 364,801
Mortgage-backed securities 95,738 82,331 70,100
Investment securities 17,438 19,316 25,703
------------ ------------ ------------
498,027 455,577 460,604
INTEREST EXPENSE
Customer accounts 172,735 159,942 156,099
FHLB advances and other borrowings 126,776 84,548 96,134
299,511 244,490 252,233
------------ ------------ ------------
Net interest income 198,516 211,087 208,371
Provision for loan losses -- 684 740
------------ ------------ ------------
Net interest income after provision for loan losses 198,516 210,403 207,631
OTHER INCOME
Gain on sale of mortgage-backed securities, net 4,058 2,747 5,560
Other 6,319 9,918 5,472
------------ ------------ ------------
10,377 12,665 11,032
OTHER EXPENSE
Compensation and fringe benefits 26,739 26,485 24,852
Amortization of intangibles 6,006 6,056 6,039
Occupancy expense 4,096 4,001 4,151
SAIF deposit insurance premiums 1,003 1,826 1,790
Other 8,802 7,733 8,284
------------ ------------ ------------
46,646 46,101 45,116
Gain on real estate acquired through foreclosure, net 932 114 238
------------ ------------ ------------
Income before income taxes 163,179 177,081 173,785
Income taxes
Current 59,045 75,507 48,883
Deferred (1,545) (12,712) 13,066
57,500 62,795 61,949
------------ ------------ ------------
NET INCOME $ 105,679 $ 114,286 $ 111,836
------------ ------------ ------------
PER SHARE DATA
Basic earnings per share $ 2.01 $ 2.06 $ 1.94
Diluted earnings per share $ 2.00 $ 2.05 $ 1.92
Cash dividends $ .98 $ .90 $ .82
Weighted average number of shares outstanding,
including dilutive stock options 52,915,295 55,806,778 58,155,078
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13
<PAGE> 14
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Other
Common Paid-in Retained Comprehensive Treasury
Stock Capital Earnings Income Stock Total
-------- --------- ---------- ------------- ----------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1997 $ 51,138 $ 573,241 $ 131,632 $ 30,000 $ (68,266) $ 717,745
Eleven-for-ten stock split
distributed February 26, 1998 5,118 138,195 (143,351) (38)
Comprehensive income:
Net income 111,836 111,836
Other comprehensive income,
net of tax:
Unrealized gains on securities 9,586 9,586
Reclassification adjustment (4,586) (4,586)
-------- --------- ---------- -------- ----------- ---------
Total comprehensive income 116,836
Dividends (46,848) (46,848)
Proceeds from exercise of
common stock options 168 2,297 2,465
Proceeds from Employee
Stock Ownership Plan 967 2,040 3,007
Treasury stock (25,995) (25,995)
Balance at September 30, 1998 56,424 714,700 53,269 35,000 (92,221) 767,172
-------- --------- ---------- -------- ----------- ---------
Eleven-for-ten stock split
distributed February 26, 1999 5,643 68,617 (74,360) (100)
Comprehensive income:
Net income 114,286 114,286
Other comprehensive income,
net of tax:
Unrealized losses on securities (28,228) (28,228)
Reclassification adjustment (1,772) (1,772)
-------- --------- ---------- -------- ----------- ---------
Total comprehensive income 84,286
Dividends (49,209) (49,209)
Proceeds from exercise of
common stock options 125 1,427 1,552
Proceeds from Employee
Stock Ownership Plan 287 973 1,260
Treasury stock (54,938) (54,938)
Balance at September 30, 1999 62,192 785,031 43,986 5,000 (146,186) 750,023
-------- --------- ---------- -------- ----------- ---------
Comprehensive income:
Net income 105,679 105,679
Other comprehensive income,
net of tax:
Unrealized gains on securities 628 628
Reclassification adjustment (2,628) (2,628)
-------- --------- ---------- -------- ----------- ---------
Total comprehensive income 103,679
Dividends (51,310) (51,310)
Proceeds from exercise of
common stock options 92 1,117 1,209
Proceeds from Employee
Stock Ownership Plan (604) 4,653 4,049
Restricted stock issuance 12 201 (213) --
Treasury stock (48,485) (48,485)
Balance at September 30, 2000 $ 62,296 $ 785,745 $ 98,142 $ 3,000 $ (190,018) $ 759,165
-------- --------- ---------- -------- ----------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14
<PAGE> 15
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended September 30, 2000 1999 1998
------------------------ ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 105,679 $ 114,286 $ 111,836
Adjustments to reconcile net income to net cash provided
by operating activities
Amortization of fees, discounts, and premiums, net (17,768) (25,646) (28,426)
Amortization of costs in excess of net assets acquired 6,006 6,056 6,038
Depreciation 2,337 2,263 2,287
Gain on investment securities and real estate held for sale (4,990) (2,861) (5,798)
Decrease (increase) in accrued interest receivable (4,179) (1,346) 1,208
Increase in income taxes payable 1,508 142 8,710
FHLB stock dividends (7,470) (7,794) (7,466)
Decrease (increase) in other assets 603 5,334 (4,265)
Increase in accrued expenses and other liabilities 2,682 993 4,844
Net cash provided by operating activities 84,408 91,427 88,968
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans and contracts originated
Loans on existing property (923,290) (1,058,403) (723,337)
Construction loans (451,582) (425,190) (467,884)
Land loans (118,947) (121,853) (105,901)
Loans refinanced (28,471) (164,166) (157,110)
----------- ----------- -----------
(1,522,290) (1,769,612) (1,454,232)
Savings account loans originated (3,004) (4,420) (4,984)
Loan principal repayments 974,469 1,497,888 1,483,446
Increase (decrease) in undisbursed loans in process (17,087) 48,862 35,934
Loans purchased (1,630) (1,138) (1,797)
Available-for-sale securities purchased (150,287) (765,963) (319,209)
Principal payments and maturities of available-for-sale securities 132,608 297,809 191,360
Available-for-sale securities sold 12,442 22,726 55,560
Held-to-maturity securities purchased (4,010) -- --
Principal payments and maturities of held-to-maturity securities 36,540 122,621 120,024
Proceeds from sales of real estate held for sale 14,335 13,435 24,454
Premises and equipment purchased, net (2,714) (3,491) (3,617)
Net cash provided (used) by investing activities (530,628) (541,283) 126,939
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in customer accounts 85,768 223,300 178,171
Net increase (decrease) in short-term borrowings 455,252 329,938 (773,725)
Proceeds from long-term borrowings -- -- 600,000
Repayments of long-term borrowings -- -- (152,500)
Proceeds from exercise of common stock options 1,209 1,552 1,762
Dividends (51,310) (49,209) (46,848)
Proceeds from Employee Stock Ownership Plan 4,049 1,260 967
Treasury stock purchased, net (48,485) (54,938) (23,955)
Increase (decrease) in advance payments by borrowers for taxes and insurance 2,986 775 (1,008)
Net cash provided (used) by financing activities 449,469 452,678 (217,136)
----------- ----------- -----------
Increase (decrease) in cash 3,249 2,822 (1,229)
Cash at beginning of year 25,037 22,215 23,444
Cash at end of year $ 28,286 $ 25,037 $ 22,215
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Noncash investing activities
Real estate acquired through foreclosure $ 14,140 $ 13,807 $ 10,220
Cash paid during the year for
Interest $ 295,129 $ 245,987 $ 248,357
Income taxes 54,744 60,412 53,368
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2000, 1999 AND 1998
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation. The consolidated financial statements include the
accounts of Washington Federal, Inc. (the Company) and its wholly-owned
subsidiaries. All significant intercompany transactions and balances have been
eliminated.
Description of business. Washington Federal, Inc. is a savings and loan holding
company. The Company's principal operating subsidiary is Washington Federal
Savings (the Association). The Company is principally engaged in the business of
attracting savings deposits from the general public and investing these funds,
together with borrowings and other funds, in one-to-four family residential real
estate loans and, in limited circumstances, income-producing property real
estate loans. The Company conducts its activities from a network of 108
full-service branch offices located in Washington, Oregon, Idaho, Utah, Arizona
and Nevada.
Investment and mortgage-backed securities. The Company accounts for investment
and mortgage-backed securities in two categories: held-to-maturity and
available-for-sale.
Held-to-Maturity Securities -- Securities classified as held-to-maturity are
accounted for at amortized cost, but the Company must have both the positive
intent and the ability to hold those securities to maturity. There are very
limited circumstances under which securities in the held-to-maturity category
can be sold without jeopardizing the cost basis of accounting for the remainder
of the securities in this category. Recognition for unrealized losses is
provided in the portfolio if any market valuation differences are deemed to be
other than temporary.
Available-for-Sale Securities -- Securities not classified as held-to-maturity
are considered to be available-for-sale. Gains and losses realized on the sale
of these securities are based on the specific identification method. Unrealized
gains and losses for available-for-sale securities are excluded from earnings
and reported as a net amount in a separate component of stockholders' equity
until realized.
Forward contracts to purchase mortgage-backed securities are designated as
available-for-sale. Changes in the fair value of forward contracts designated as
available-for-sale are recognized as a component of stockholders' equity through
comprehensive income until realized, unless a decline in the fair value of the
underlying securities is other than temporary. Securities purchased under a
forward contract are recorded at their fair values at the settlement date.
Hedging activity. The Company from time to time may enter into certain forward
contracts to sell mortgage-backed securities to hedge the price risk in certain
forward purchase contracts accounted for as available-for-sale securities. To
the extent forward sales contracts meet current hedging criteria, the market
value change associated with the contract is recorded through an equity
adjustment consistent with the forward sales contract. To the extent that
forward sales contracts fail to meet hedging criteria, the market value will be
recorded through income.
Loans receivable. Loans receivable more than 90 days past due are placed on
nonaccrual status and an allowance for accrued interest is established. Any
interest ultimately collected is credited to income in the period of recovery.
The Company maintains an allowance for loan losses to absorb losses inherent in
the loan portfolio. The allowance is based on ongoing, quarterly assessments of
the probable and estimable losses inherent in the loan portfolio. The
16
<PAGE> 17
Company's methodology for assessing the appropriateness of the allowance
consists of several key elements which include the formula allowance, specific
allowances and the unallocated allowance.
The formula portion of the general loan loss allowance is established by
applying a loss percentage factor to the different loan types. The allowances
are provided based on management's continuing evaluation of the pertinent
factors underlying the quality of the loan portfolio, including changes in the
size and composition of the loan portfolio, actual loan loss experience and
current economic conditions. The recovery of the carrying value of loans is
susceptible to future market conditions beyond the Company's control which may
result in losses or recoveries differing from those provided.
Specific allowances are established in cases where management has identified
significant conditions or circumstances related to a loan that management
believes indicate the probability that a loss has been incurred.
The unallocated allowance is comprised of two components. The first component
recognizes the estimation risk associated with the formula and specific
allowances. The second component is based upon management's evaluation of
various conditions that are not directly measured in the determination of the
formula and specific allowances. The conditions evaluated in connection with the
unallocated allowance may include loan volumes and concentrations, seasoning of
the loan portfolio, specific industry conditions, recent loss experience within
certain parts of the portfolio and the duration of the current business cycle.
Loans receivable that will not be repaid in accordance with their contractual
terms are measured using a discounted cash flow methodology or the fair value of
the collateral for certain loans. Smaller balance loans are excluded with
limited exceptions.
Premises and equipment. Premises and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation and amortization are
computed on the straight-line method over the estimated useful lives of the
respective assets. Expenditures are capitalized for betterments and major
renewals, and charges for ordinary maintenance and repairs are expensed to
operations as incurred.
Real estate held for sale. Properties acquired in settlement of loans, purchased
in acquisitions or acquired for development are recorded at the lower of cost or
fair value.
Costs in excess of net assets acquired. Costs in excess of fair value of net
assets acquired in business combinations are amortized to expense over a period
not to exceed 15 years using the straight-line method. From time to time, the
Company reviews the status of costs in excess of net assets acquired to
determine that no impairment of the assets has occurred.
Deferred fees and discounts on loans. Loan discounts and loan fees are deferred
and recognized over the life of the loans using the interest method based on
actual loan payments.
Use of estimates. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates.
Business segments. The Company has determined that its current business and
operations consist of a single business segment.
Reclassifications. Certain reclassifications have been made to the financial
statements for years prior to September 30, 2000 to conform to the
classifications used in 2000.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B
INVESTMENT SECURITIES
<TABLE>
<CAPTION>
September 30, 2000
------------- -----------------------------------------------------
(In thousands)
Amortized Gross Unrealized Fair
-------- -------------------- --------
<S> <C> <C>
</TABLE>
17
<PAGE> 18
<TABLE>
<CAPTION>
Cost Gains Losses Value Yield
-------- ------ ------- -------- ----
<S> <C> <C> <C> <C> <C>
Available-for-sale securities
U.S. government and agency securities due
Within 1 year $ 81,123 $ -- $(1,617) $ 79,506 6.11%
1 to 5 years 15,102 538 -- 15,640 6.98
Over 10 years 19,279 3,080 -- 22,359 10.13
115,504 3,618 (1,617) 117,505 6.90
-------- ------ ------- -------- ----
Held-to-maturity securities
Tax-exempt municipal bonds due
1 to 5 years 7,650 241 -- 7,891 6.67
Over 10 years 17,837 932 -- 18,769 6.12
25,487 1,173 -- 26,660 6.29
$140,991 $4,791 $(1,617) $144,165 6.79%
</TABLE>
<TABLE>
<CAPTION>
September 30, 1999
------------- -----------------------------------------------------------------
(In thousands)
Amortized Gross Unrealized Fair
Cost Gains Losses Value Yield
-------- ------ ------- -------- -----
Available-for-sale securities
U.S. government and agency securities due
<S> <C> <C> <C> <C> <C>
Within 1 year $ 90,869 $1,073 $ -- $ 91,942 7.98%
1 to 5 years 15,130 690 -- 15,820 6.98
Over 10 years 9,279 3,237 -- 12,516 10.41
115,278 5,000 -- 120,278 8.05
-------- ------ ------- -------- ----
Held-to-maturity securities
Tax-exempt municipal bonds due
1 to 5 years 7,651 436 -- 8,087 6.67
Over 10 years 13,824 814 (6) 14,632 6.26
21,475 1,250 (6) 22,719 6.41
$136,753 $6,250 $ (6) $142,997 7.79%
-------- ------ ------- -------- ----
</TABLE>
There were no sales of investment securities during 2000 or 1999. Investment
securities with a book value of $85.6 million and a fair value of $87.8 million
at September 30, 2000 were pledged to secure public deposits.
NOTE C
MORTGAGE-BACKED SECURITIES
<TABLE>
<CAPTION>
September 30, 2000
------------- -----------------------------------------------------------------
(In thousands)
Amortized Gross Unrealized Fair
Cost Gains Losses Value Yield
-------- ------ ------- -------- ----
<S> <C> <C> <C> <C> <C>
Available-for-sale securities
GNMA pass-through certificates $ 7,758 $ 23 $ (91) $ 7,690 7.11%
FNMA pass-through certificates 18,992 563 (226) 19,329 7.86
FHLMC pass-through certificates 994,188 6,317 (20,707) 979,798 7.01
FHLMC 13,153 924 (243) 13,834 7.33
FNMA 8,720 617 (182) 9,155 7.00
Private issues 15,148 1,057 (268) 15,937 6.80
Forward commitments -- 15,216 -- 15,216 --
1,057,959 24,717 (21,717) 1,060,959 7.02
-------- ------ ------- -------- ----
Held-to-maturity securities
GNMA pass-through certificates 114 6 -- 120 9.64
FNMA pass-through certificates 6,558 137 (61) 6,634 8.13
FHLMC pass-through certificates 260,474 2,222 (3,846) 258,850 7.23
267,146 2,365 (3,907) 265,604 7.25
$1,325,105 $27,082 $(25,624) $1,326,563 7.07%
-------- ------ ------- -------- ----
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
September 30, 1999
------------- ----------------------------------------------------------------------------
(In thousands)
Amortized Gross Unrealized Fair
Cost Gains Losses Value Yield
----------- ----------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C>
Available-for-sale securities
GNMA pass-through certificates $ 9,361 $ 28 $ (112) $ 9,277 6.66%
FNMA pass-through certificates 11,290 808 -- 12,098 8.48
FHLMC pass-through certificates 980,626 8,526 (20,084) 969,068 6.96
FHLMC 18,030 1,350 (121) 19,259 6.79
FNMA 11,046 815 (137) 11,724 6.60
Private issues 16,286 1,245 (228) 17,303 6.52
Forward commitments -- 10,910 -- 10,910 --
1,046,639 23,682 (20,682) 1,049,639 6.96
----------- ----------- ----------- ----------- ----
Held-to-maturity securities
GNMA pass-through certificates 116 9 -- 125 9.65
FNMA pass-through certificates 7,931 242 (23) 8,150 8.15
FHLMC pass-through certificates 295,230 3,937 (3,159) 296,008 7.25
303,277 4,188 (3,182) 304,283 7.27
$ 1,349,916 $ 27,870 $ (23,864) $ 1,353,922 7.03%
----------- ----------- ----------- ----------- ----
</TABLE>
Proceeds from sales of mortgage-backed securities in the available-for-sale
portfolio during 2000, 1999 and 1998 were $41.0 million, $22.7 million and $55.6
million, respectively. The Company realized gains of $4.1 million, $2.7 million
and $5.6 million during 2000, 1999 and 1998, respectively. The Company had no
losses on sales during 2000, 1999 or 1998. Available-for-sale mortgage-backed
securities with a book value of $971.5 million and a fair value of $957.4
million at September 30, 2000 were pledged to secure public deposits, securities
sold under agreements to repurchase and other borrowings. Mortgage-backed
securities categorized as held-to-maturity with a fair market value of
approximately $201.8 million were pledged as collateral on September 30, 2000
for securities sold under agreements to repurchase (see Note K) or secured
repurchase agreements with customers (see Note I). Substantially all
mortgage-backed securities have contractual due dates which exceed ten years.
The Company enters into forward contracts to purchase mortgage-backed securities
as part of its interest rate risk management program. In certain circumstances,
the Company may hedge these contracts by entering into forward commitments to
sell mortgage-backed securities. The related mortgage-backed securities are
designated as available-for-sale securities upon exercise of the commitments.
Forward purchase and sales contracts were as follows:
<TABLE>
<CAPTION>
September 30, 2000 1999
------------- ----------------------------------------------------------------
(In thousands)
Market Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
Commitments to purchase $453,316 $468,532 $147,395 $158,305
-------- -------- -------- --------
</TABLE>
19
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D
LOANS RECEIVABLE
<TABLE>
<CAPTION>
September 30, 2000 1999
------------- ---------- ----------
(In thousands)
<S> <C> <C>
Conventional real estate
Permanent single-family residential $4,162,175 $3,664,338
Income property 288,299 271,673
Land 180,745 170,479
Construction 646,823 620,459
Other 1,956 3,125
5,279,998 4,730,074
---------- ----------
Less
Allowance for possible losses 20,831 21,900
Discount on loans 4,498 5,929
Loans in process 278,561 295,646
Deferred loan origination fees 26,873 27,87
330,763 351,346
$4,949,235 $4,378,728
---------- ----------
</TABLE>
The Company originates adjustable and fixed interest rate loans, which at
September 30, 2000 consisted of the following:
<TABLE>
<CAPTION>
Fixed-Rate Adjustable-Rate
(In thousands) (In thousands)
<S> <C> <C> <C>
Term to Maturity Book Value Term to Rate Adjustment Book Value
Within 1 year $ 32,544 Less than 1 year $655,761
1 to 3 years 37,787 1 to 3 years 47,700
3 to 5 years 54,598 3 to 5 years 21,626
5 to 10 years 377,989 5 to 10 years 1,012
10 to 20 years 488,553 10 to 20 years --
Over 20 years 3,562,428 Over 20 years --
$4,553,899 $726,099
</TABLE>
At September 30, 2000 and 1999, approximately $55,490,991 and $58,436,000 of
fixed-rate loan origination commitments were outstanding, respectively. Loans
serviced for others at September 30, 2000 and 1999 were approximately
$37,912,000 and $48,198,000, respectively.
Permanent single-family residential loans receivable included adjustable-rate
loans of $48,824,221 and $65,708,000 at September 30, 2000 and 1999,
respectively. These loans have interest rate adjustment limitations and are
generally indexed to the 1-year Treasury Bill rate or the monthly weighted
average cost of funds for Eleventh District savings institutions as published by
the FHLB.
Loans by geographic concentration were as follows:
<TABLE>
<CAPTION>
September 30, 2000 Washington Idaho Oregon Utah Arizona Other Total
------------------ ---------- ----- ------ ---- ------- ----- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Conventional real estate
Permanent single-family
residential $2,041,498 $ 532,636 $ 751,685 $ 561,956 $ 259,106 $ 15,294 $4,162,175
Income property 115,095 19,859 49,340 26,951 65,467 11,587 288,299
Land 93,268 24,331 13,187 23,882 25,916 161 180,745
Construction 342,977 72,315 96,085 67,751 67,311 384 646,823
Other 1,785 112 22 37 -- -- 1,956
$2,594,623 $ 649,253 $ 910,319 $ 680,577 $ 417,800 $ 27,426 $5,279,998
---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
At September 30, 2000 the Company's recorded investment in impaired loans was
$7.1 million with allocated reserves of $ .6 million. At September 30, 1999 the
Company's recorded investment in impaired loans was $8.6 million of which $6.6
million had allocated reserves of $2.6 million. The average balance of impaired
loans during 2000 and 1999 was $10.2 million and $16.3 million and interest
income from impaired loans was $207,000 and $332,000, respectively.
NOTE E
20
<PAGE> 21
ALLOWANCE FOR LOSSES ON LOANS
<TABLE>
<CAPTION>
Year ended September 30, 2000 1999 1998
------------------------ ---- ---- ----
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 21,900 $ 23,854 $ 24,623
Provision for loan losses -- 684 740
Charge-offs (1,377) (3,131) (2,304)
Recoveries 308 493 795
Balance at end of year $ 20,831 $ 21,900 $ 23,854
-------- -------- --------
</TABLE>
NOTE F
INTEREST RECEIVABLE
<TABLE>
<CAPTION>
September 30, 2000 1999
------------- ---- ----
(In thousands)
<S> <C> <C>
Loans receivable $ 30,769 $ 26,995
Allowance for uncollected interest on loans receivable (720) (1,364)
Mortgage-backed securities 7,612 8,240
Investment securities 3,039 2,650
$ 40,700 $ 36,521
-------- --------
</TABLE>
NOTE G
PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
September 30, 2000 1999
------------- ---- ----
(In thousands)
Estimated
Useful Life
-----------
<S> <C> <C> <C>
Land -- $ 12,100 $ 11,251
Buildings 25 - 40 48,966 48,137
Leasehold improvements 7 - 15 4,765 4,583
Furniture, fixtures and equipment 4 - 10 12,691 12,895
------- -------- --------
78,522 76,866
Less accumulated depreciation and amortization (28,035) (26,756)
$50,487 $50,110
------- -------- --------
</TABLE>
The Company has noncancelable operating leases for branch offices. Rental
expense, including amounts paid under month-to-month cancelable leases, amounted
to $1,510,000, $1,438,000 and $1,420,000 in 2000, 1999 and 1998, respectively.
Future minimum net rental commitments for all noncancelable leases, including
maintenance and associated costs, are immaterial.
NOTE H
REAL ESTATE HELD FOR SALE
<TABLE>
<CAPTION>
September 30, 2000 1999
------------- ---- ----
(In thousands)
<S> <C> <C>
Acquired for development $ 7,953 $ 9,753
Acquired in settlement of loans 9,463 6,926
$17,416 $16,679
</TABLE>
21
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I
CUSTOMER ACCOUNTS
<TABLE>
<CAPTION>
September 30, 2000 1999
------------- ---------- ----------
(In thousands)
<S> <C> <C>
Checking accounts, 2.60% and under $ 99,888 $ 101,950
Passbook and statement accounts, 3.00% 139,409 160,518
Insured money market accounts, 2.47% to 5.83% 542,148 549,420
Certificate accounts
Less than 4.00% 112 271
4.00% to 4.99% 88,838 1,083,112
5.00% to 5.99% 1,022,699 1,385,528
6.00% to 6.99% 1,478,897 9,698
7.00% and over 3,045 1,360
Total certificates 2,593,591 2,479,969
Repurchase agreements with customers 90,234 87,645
$3,465,270 $3,379,502
---------- ----------
</TABLE>
Certificate maturities were as follows:
<TABLE>
<CAPTION>
September 30, 2000 1999
------------ ---------- ----------
(In thousands)
<S> <C> <C>
Within 1 year $2,337,283 $2,127,850
1 to 2 years 150,566 219,300
2 to 3 years 61,637 43,022
Over 3 years 44,105 89,797
$2,593,591 $2,479,969
---------- ----------
</TABLE>
Interest expense on customer accounts consisted of the following:
<TABLE>
<CAPTION>
Year ended September 30, 2000 1999 1998
------------------------ --------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Checking accounts $ 2,372 $ 2,266 $ 2,153
Passbook and statement accounts 4,468 5,225 6,048
Insured money market accounts 22,793 20,057 16,889
Certificate accounts 138,614 127,867 127,221
--------- --------- ---------
168,247 155,415 152,311
Repurchase agreements with customers 5,052 4,930 4,252
--------- --------- ---------
173,299 160,345 156,563
Less early withdrawal penalties (564) (403) (464)
$ 172,735 $ 159,942 $ 156,099
--------- --------- ---------
Weighted average interest rate at end of year 5.57% 4.71% 5.09%
Weighted daily average interest rate
during the year 5.07% 4.84% 5.14%
</TABLE>
NOTE J
FHLB ADVANCES
Maturity dates of Federal Home Loan Bank (FHLB) advances were as follows:
<TABLE>
<CAPTION>
September 30, 2000 1999
------------- ---------- ----------
(In thousands)
<S> <C> <C>
FHLB advances due
Within 1 year $ 609,000 $ 654,000
2 to 3 years -- 200,000
3 to 4 years 200,000 --
More than 5 years 400,000 600,000
$1,209,000 $1,454,000
---------- ----------
</TABLE>
FHLB advances totaling $200,000,000 with an interest rate of 5.49% are callable
in 2002. FHLB advances totaling $400,000,000 with an average interest rate of
5.58% are callable in 2003.
22
<PAGE> 23
Financial data pertaining to the weighted average cost and the amount of FHLB
advances were as follows:
<TABLE>
<CAPTION>
September 30, 2000 1999 1998
------------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Weighted average interest rate at end of year 6.06% 5.42% 5.50%
Weighted daily average interest rate during the year 5.82% 5.51% 5.60%
Daily average of FHLB advances $ 802,818 $1,076,263 $1,210,362
Maximum amount of FHLB advances at any month end 1,209,000 1,454,000 1,523,500
Interest expense during the year 46,738 59,275 67,816
---------- ---------- ----------
</TABLE>
FHLB advances are collateralized as provided for in the Advance, Pledge and
Security Agreements by all FHLB stock owned by the Association, deposits with
the FHLB and certain mortgages or deeds of trust securing such properties as
provided in the agreements with the FHLB. As a member of the FHLB of Seattle,
the Association currently has a credit line of 35% of the total assets of the
Association, subject to collateralization requirements.
NOTE K
OTHER BORROWINGS
<TABLE>
<CAPTION>
September 30, 2000 1999
------------- ---------- ----------
(In thousands)
<S> <C> <C>
Securities sold under agreements to repurchase
Due within 60 days $1,074,509 $ 303,257
Other borrowings
Credit facility, weighted average rate of 5.63% in 1999 -- 1,000
Federal funds purchased, weighted average rate of 6.75%
in 2000 and 5.64% in 1999, due on demand 80,000 150,000
$1,154,509 $ 454,257
---------- ----------
</TABLE>
The Company has a $40,000,000 credit facility with another financial institution
which expires February 2001. The credit facility bears interest at the London
Interbank Offering Rate (LIBOR) plus 25 basis points.
The Company enters into sales of securities under agreements to repurchase
(reverse repurchase agreements). Fixed-coupon reverse repurchase agreements are
treated as financings, and the obligations to repurchase securities sold are
reflected as a liability in the consolidated statements of financial condition.
During the two years ended September 30, 2000 all of the Company's transactions
were fixed-coupon reverse repurchase agreements. The dollar amount of securities
underlying the agreements remain in the asset accounts. The securities pledged
are registered in the Company's name and principal and interest payments are
received by the Company; however, the securities are held by the designated
trustee of the broker. Upon maturity of the agreements the identical securities
pledged as collateral will be returned to the Company.
Financial data pertaining to the weighted average cost and the amount of
securities sold under agreements to repurchase were as follows:
<TABLE>
<CAPTION>
September 30, 2000 1999 1998
------------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Weighted average interest rate at end of year 6.52% 5.30% 5.57%
Weighted daily average interest rate during the year 6.12% 5.05% 5.63%
Daily average of securities sold under agreements
to repurchase $ 960,963 $ 396,098 $ 400,202
Maximum securities sold under agreements to repurchase
at any month end 1,089,127 620,580 608,990
Interest expense during the year 58,815 19,994 22,521
</TABLE>
23
<PAGE> 24
NOTE L
INCOME TAXES
The consolidated statements of financial condition at September 30, 2000 and
1999 include deferred taxes of $49,999,000 and $54,012,000, respectively, that
have been provided for the temporary differences between the tax basis and the
financial statement carrying amounts of assets and liabilities. The major
sources of these temporary differences and their deferred tax effects were as
follows:
<TABLE>
<CAPTION>
September 30, 2000 1999
------------- ------- -------
(In thousands)
<S> <C> <C>
Deferred tax assets
Real estate valuation reserves $ -- $ 972
Discounts 28 46
Total deferred tax assets 28 1,018
------- -------
Deferred tax liabilities
Federal Home Loan Bank stock dividends 24,375 21,499
Loan loss reserves 8,968 11,159
Valuation adjustment on available-for-sale securities 2,000 3,000
Depreciation 2,800 2,813
Loan origination costs 10,902 9,467
State income taxes -- 2,500
Other, net 982 4,592
Total deferred tax liabilities 50,027 55,030
Net deferred tax liability $49,999 $54,012
------- -------
</TABLE>
A reconciliation of the statutory federal income tax rate to the effective
income tax rate follows:
<TABLE>
<CAPTION>
Year ended September 30, 2000 1999 1998
------------------------ ---- ---- ----
<S> <C> <C> <C>
Statutory income tax rate 35% 35% 35%
Dividend received deduction (1) (2) (2)
Tax-exempt interest -- (1) --
State income tax 1 3 2
Other, net -- 1 1
Effective income tax rate 35% 36% 36%
---- ---- ----
</TABLE>
The Small Business Job Protection Act of 1996 (the Act) required qualified
thrift institutions, such as the Association, to recapture the portion of their
tax bad debt reserves that exceeded the September 30, 1988 balance. Such
recaptured amounts are to be taken into taxable income ratably over a six-year
period beginning in 1999. Accordingly, the Association is required to pay
approximately $23,469,000 in additional federal income taxes, all of which has
been previously provided for, beginning in fiscal 1999 and continuing through
fiscal 2004.
A deferred tax liability has not been required to be recognized for the tax bad
debt base year reserves of the Association. The base year reserves are the
balance of reserves as of September 30, 1988 reduced proportionately for
reductions in the Association's loan portfolio since that date. At September 30,
2000 the amount of those reserves was approximately $4,835,000. The amount of
the unrecognized deferred tax liability at September 30, 2000 was approximately
$1,862,000.
The Company has been examined by the Internal Revenue Service through the year
ended September 30,
1990. There were no material changes made to the Company's taxable income, as
originally reported, as a result of this examination.
NOTE M
PROFIT SHARING RETIREMENT AND EMPLOYEE STOCK OWNERSHIP PLAN
The Company maintains a Profit Sharing Retirement and Employee Stock Ownership
Plan (the Plan) for the benefit of its employees. Contributions are made
semi-annually as approved by the Board of Directors. Such amounts are not in
excess of amounts permitted by the Employee Retirement Income Security Act.
Employees may contribute up to 7% of their base salaries to the Plan or 13% of
their base salaries on a tax-deferred basis through the 401(k) provisions of the
Plan with a combined maximum of 13%. Under provisions of the Plan, employees are
eligible to participate on the date of hire and become vested in the Company's
contributions following seven years of service. During August 1995 the Company
received a favorable determination from the Internal Revenue Service to include
an Employee Stock Ownership feature as part of the Plan. This feature allows the
employee to direct a portion of their vested account balance toward the purchase
of Company stock. Contributions to the Plan amounted to $1,724,000, $1,745,000
and $1,493,000 for the years ended September 30, 2000, 1999 and 1998,
respectively.
24
<PAGE> 25
NOTE N
STOCK OPTION PLANS
The Company has three employee stock option plans which provide a combination of
stock options and stock grants. Stockholders authorized 5,351,518 shares,
1,688,074 shares and 2,781,790 unissued shares of common stock to be reserved
pursuant to the 1982 Employee Stock Compensation Program (the 1982 Plan), the
1987 Stock Option and Stock Appreciation Rights Plan (the 1987 Plan) and the
1994 Stock Option and Stock Appreciation Rights Plan (the 1994 Plan),
respectively. The 1987 Plan and 1994 Plan are substantially similar to the 1982
Plan, but incorporate changes in the Internal Revenue Code affecting incentive
stock options and do not provide for the grant of performance share awards.
Options granted under each plan vest at varying percentages commencing as early
as one year after the date of grant with expiration dates ten years after the
date of grant.
<TABLE>
<CAPTION>
Weighted Average
Fair Value of Option
Average Price(1) Number(1) Shares Granted
---------------- -------------------- --------------
<S> <C> <C> <C> <C>
Outstanding, October 1, 1997 $ 13.62 1,572,160
Granted in 1998 24.06 469,703 $3.53
Exercised in 1998 11.97 (176,456)
Forfeited in 1998 14.45 (167,519)
----- --------- ---------- -----
Outstanding, September 30, 1998 16.59 1,697,888
Granted in 1999 21.86 55,970 3.75
Exercised in 1999 12.38 (143,039)
Forfeited in 1999 17.77 (63,903)
----- --------- ---------- -----
Outstanding, September 30, 1999 17.12 1,546,916
Granted in 2000 18.84 724,062 4.22
Exercised in 2000 13.02 (94,386)
Forfeited in 2000 19.21 (175,430)
----- --------- ---------- -----
Outstanding, September 30, 2000 $17.75 2,001,162
</TABLE>
(1)Average price and number of stock options granted, exercised and forfeited
have been adjusted for 10% stock dividends in the second quarter of both 1999
and 1998 which had the effect of an eleven-for-ten stock split.
Financial data pertaining to outstanding stock options were as follows:
<TABLE>
<CAPTION>
September 30, 2000
----------------------------------------------------------------------------------------------------------------
Weighted
Weighted Weighted Average
Average Average Number of Exercisable Price
Ranges of Number of Remaining Exercise Price of Exercisable of Exercisable
Exercise Prices Option Shares Contractual Life Option Shares Option Shares Option Shares
----------------- ------------- ---------------- ----------------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
$ 8.75 - 14.68 475,434 3.3 years $12.44 357,640 $12.48
15.20 - 17.37 432,331 4.8 15.67 187,771 15.57
18.88 - 24.38 1,093,397 8.4 20.89 72,844 21.46
2,001,162 6.4 years $17.75 618,255 $14.48
--------------- ------------ ---------------- ----------------- ------------- -------------------
</TABLE>
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-based Compensation." SFAS No. 123 requires expanded disclosures of
stock-based compensation arrangements with employees and encourages application
of the fair value recognition provisions in the statement. SFAS No. 123 does not
rescind or interpret the existing
25
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
accounting rules for employee stock-based arrangements. Companies may continue
following those rules to recognize and measure compensation as outlined in
Accounting Principles Board (APB) Opinion No. 25, but they will now be required
to disclose the pro forma amounts of net income and earnings per share that
would have been reported had the company elected to follow the fair value
recognition provisions of SFAS No. 123. Effective October 1, 1996, the Company
adopted the disclosure requirements of SFAS No. 123, but has determined that it
will continue to measure its employee stock-based compensation arrangements
under the provisions of APB No. 25. Had compensation costs for the Company's
compensation plans been determined consistent with SFAS No. 123, the Company's
net income attributable to common stock would have been reduced by $3,058,000,
$210,000 and $749,000 for 2000, 1999 and 1998, respectively. Net income per
share would have decreased by $.04 per share in 2000 and would have remained the
same in both 1999 and 1998. The fair value of options granted under the
Company's stock option plan is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: annual dividend yield of 5.00% for 2000, 4.00% for 1999 and 3.25%
for 1998; expected volatility of 29% for 2000, 18% for 1999 and 13% for 1998;
risk-free interest rate of 5.80% for 2000, 5.75% for 1999 and 5.50% for 1998; an
expected life of five years for all three years.
NOTE O
STOCKHOLDERS' EQUITY
In the second quarter of fiscal 1999, the Company declared an eleven-for-ten
stock split in the form of a 10% stock dividend in addition to the regular
quarterly cash dividends on its shares of common stock.
The Association is subject to various regulatory capital requirements
administered by the Office of Thrift Supervision (OTS). Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary action by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action the
Association must meet specific capital guidelines that involve quantitative
measures of the Association's assets, liabilities and certain off-balance sheet
items as calculated under regulatory accounting practices. The Association's
capital amounts and classification are also subject to qualitative judgments by
the regulators about capital components, risk-weightings and other factors. As
of September 30, 2000 and 1999 the OTS categorized the Association as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Association must maintain minimum total
risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the
following table. There are no conditions or events since that notification that
management believes have changed the Association's categorization.
<TABLE>
<CAPTION>
To be Categorized as
Well Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
September 30, 2000
Total capital to
risk-weighted assets $716,441 19.45% $294,646 8.00% $368,308 10.00%
Tier I capital to risk-weighted assets 706,991 19.20% NA NA 220,985 6.00%
Core capital to adjusted tangible assets 706,991 10.61% NA NA 333,155 5.00%
Core capital to total assets 706,991 10.61% 199,893 3.00% NA NA
Tangible capital to tangible assets 706,991 10.61% 99,947 1.50% NA NA
September 30, 1999
Total capital to risk-weighted assets $698,484 21.77% $256,641 8.00% $320,802 10.00%
Tier I capital to risk-weighted assets 690,074 21.51% NA NA 192,481 6.00%
Core capital to adjusted tangible assets 690,074 11.31% NA NA 305,008 5.00%
Core capital to total assets 690,074 11.31% 183,005 3.00% NA NA
Tangible capital to tangible assets 690,074 11.31% 91,502 1.50% NA NA
</TABLE>
At periodic intervals, the OTS and the Federal Deposit Insurance Corporation
(FDIC) routinely examine the Company's financial statements as part of their
oversight of the savings and loan industry. Based on their examinations, these
regulators can direct that the Company's financial statements be adjusted in
accordance with their findings. The extent to which forthcoming regulatory
examinations may result in adjustments to the financial statements cannot be
determined; however, no adjustments were proposed as a result of the most recent
OTS examination which concluded in April 2000.
26
<PAGE> 27
Information used to calculate earnings per share follows:
<TABLE>
<CAPTION>
September 30, 2000 1999 1998
----------- ----------- -----------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
Net income $ 105,679 $ 114,286 $ 111,836
Weighted average shares
Basic weighted average number of
common shares outstanding 52,646,856 55,345,712 57,540,414
Dilutive effect of outstanding common stock equivalents 268,439 461,066 614,664
----------- ----------- -----------
Diluted weighted average number of
common shares outstanding 52,915,295 55,806,778 58,155,078
----------- ----------- -----------
Net income per share
Basic $ 2.01 $ 2.06 $ 1.94
Diluted 2.00 2.05 1.92
</TABLE>
NOTE P
FAIR VALUES OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure of fair value information about financial instruments, whether or not
recognized on the balance sheet, for which it is practicable to estimate those
values. SFAS No. 107 excludes certain financial instruments and all nonfinancial
instruments from its 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, such amounts have not been
comprehensively revalued for purposes of these financial statements since that
date and, therefore, estimates of fair value subsequent to that date may differ
significantly from the amounts presented below.
<TABLE>
<CAPTION>
September 30, 2000 1999
-------------------------- --------------------------
(In thousands)
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets
Cash $ 28,286 $ 26,286 $ 25,037 $ 25,037
Available-for-sale securities 1,178,464 1,178,317 1,169,917 1,169,917
Held-to-maturity securities 292,633 292,264 324,752 327,002
Loans receivable 4,949,235 4,924,782 4,378,728 4,305,600
FHLB stock 116,314 116,314 108,844 108,844
Financial liabilities
Customer accounts 3,465,270 3,437,663 3,379,502 3,358,665
FHLB advances 1,209,000 1,200,180 1,454,000 1,402,892
Other borrowings 1,154,509 1,154,509 454,257 454,257
</TABLE>
The following methods and assumptions were used to estimate the fair value of
financial instruments:
Cash -- The carrying amount of these items is a reasonable estimate of their
fair value.
Investment securities -- The fair value is based on quoted market prices or
dealer estimates.
Loans receivable -- For certain homogeneous categories of loans, such as fixed-
and variable-rate residential mortgages, fair value is estimated using quoted
market prices for securities backed by similar loans, adjusted for differences
in loan characteristics. The fair value of other loan types is estimated by
discounting the future cash flows and estimated prepayments using the current
rates at which similar loans would be made to borrowers with similar credit
ratings and for the same remaining term. Some loan types were valued at carrying
value because of their floating rate or expected maturity characteristics.
Mortgage-backed securities -- Estimated fair value for mortgage-backed
securities issued by quasi-governmental agencies is based on quoted market
prices. The fair value of all other mortgage-backed securities is based on
dealer estimates.
FHLB stock -- The fair value is based upon the redemption value of the stock
which equates to its carrying value.
27
<PAGE> 28
Customer accounts -- The fair value of demand deposits, savings accounts, and
money market accounts is the amount payable on demand at the reporting date. The
fair value of fixed-maturity certificates of deposit is estimated by discounting
the estimated future cash flows using the rates currently offered for deposits
with similar remaining maturities.
FHLB advances and other borrowings -- The fair value of FHLB advances and other
borrowings is estimated by discounting the estimated future cash flows using
rates currently available to the Association for debt with similar remaining
maturities.
NOTE Q
ACCOUNTING CHANGES
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". In June 2000, the FASB issued SFAS No. 138,
which amends certain provisions of SFAS No. 133 to clarify four areas causing
difficulties in implementation. These statements expanded the previous
definition of derivatives to include certain additional transactions. Entities
are required to record derivatives at their fair value and recognize any changes
in fair value in current period earnings, unless specific hedge criteria are
met. The Company adopted SFAS No. 133 and the corresponding amendments under
SFAS Nos. 137 and 138 on October 1, 2000, with no material financial statement
impact. As a result of the adoption of these new accounting standards, the
Company's forward contracts to purchase mortgage-backed securities are
designated as cash flow hedges of specific forecasted purchases of securities.
28
<PAGE> 29
NOTE R
FINANCIAL INFORMATION -- WASHINGTON FEDERAL, INC.
The following Washington Federal, Inc. (parent company only) financial
information should be read in conjunction with the other notes to the
Consolidated Financial Statements. Statements of Financial Condition
<TABLE>
<CAPTION>
September 30, 2000 1999
--------- ---------
(In thousands)
<S> <C> <C>
Assets
Cash $ 1,080 $ 1,279
Investment in subsidiary 757,207 750,298
Dividend receivable 14,000 12,000
Total assets $ 772,287 $ 763,577
========= =========
Liabilities
Borrowed money $ -- $ 1,000
Dividend payable 13,100 12,475
Other liabilities 22 79
Total liabilities 13,122 13,554
--------- ---------
Stockholders' equity
Common stock, $1.00 par value: 100,000,000 shares authorized;
62,295,691 and 62,191,540 shares issued;
52,120,952 and 54,232,061 shares outstanding 62,296 62,192
Paid-in capital 785,745 785,031
Accumulated other comprehensive income, net of tax 3,000 5,000
Treasury stock, at cost; 10,174,759 and 7,959,479 shares (190,018) (146,186)
Retained earnings 98,142 43,986
Total stockholders' equity 759,165 750,023
Total liabilities and stockholders' equity $ 772,287 $ 763,577
========= =========
</TABLE>
Statements of Operations
<TABLE>
<CAPTION>
Year ended September 30, 2000 1999 1998
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Income
Dividends from subsidiary $ 97,000 $101,500 $ 67,000
Other 80 -- --
-------- -------- --------
Total Income 97,080 101,500 67,000
-------- -------- --------
Expense
Borrowings 47 47 129
Other 388 273 235
Total expense 435 320 364
-------- -------- --------
Net income before equity in undistributed net income of
subsidiaries 96,645 101,180 66,636
Equity in undistributed net income of subsidiaries 8,909 12,992 45,070
-------- -------- --------
Income before income taxes 105,554 114,172 111,706
Income tax benefit 125 114 130
-------- -------- --------
Net income $105,679 $114,286 $111,836
======== ======== ========
</TABLE>
29
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended September 30, 2000 1999 1998
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 105,679 $ 114,286 $ 111,836
Adjustments to reconcile net income to net
cash provided by operating activities
Equity in undistributed net income of subsidiaries (8,909) (12,992) (45,070)
Decrease (increase) in other assets (2,000) (2,099) 1,485
Increase in other liabilities 568 633 992
--------- --------- ---------
Net cash provided by operating activities 95,338 99,828 69,243
Cash Flows From Financing Activities
Increase (decrease) in short-term borrowings (1,000) 1,000 (1,000)
Issuance of common stock through stock option plan 1,209 1,552 1,762
Proceeds from Employee Stock Ownership Plan 4,049 1,260 967
Treasury stock purchased (48,485) (54,938) (23,955)
Dividends (51,310) (49,209) (46,848)
Net cash used by financing activities (95,537) (100,335) (69,074)
--------- --------- ---------
Increase (decrease) in cash (199) (507) 169
Cash at beginning of year 1,279 1,786 1,617
--------- --------- ---------
Cash at end of year $ 1,080 $ 1,279 $ 1,786
--------- --------- ---------
</TABLE>
NOTE S
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited interim results of operations by
quarter:
<TABLE>
<CAPTION>
First Second Third Fourth
Year ended September 30, 2000 Quarter Quarter Quarter Quarter
------- ------- ------- -------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income $120,289 $121,574 $125,311 $130,853
Interest expense 68,153 70,342 76,490 84,526
-------- -------- -------- --------
Net interest income 52,136 51,232 48,821 46,327
Provision for loan losses -- -- -- --
Other operating income 1,929 2,584 2,695 3,169
Other operating expense 11,552 12,016 11,169 10,977
-------- -------- -------- --------
Income before income taxes 42,513 41,800 40,347 38,519
Income taxes 15,092 14,792 14,059 13,557
Net income $ 27,421 $ 27,008 $ 26,288 $ 24,962
======== ======== ======== ========
Basic earnings per share $ .51 $ .51 $ .51 $ .48
Diluted earnings per share $ .51 $ .51 $ .50 $ .48
Return of average assets 1.77% 1.71% 1.63% 1.50%
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
First Second Third Fourth
Year ended September 30, 1999 Quarter Quarter Quarter Quarter
------- ------- ------- -------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income $114,393 $113,261 $112,277 $115,646
Interest expense 61,840 60,434 59,386 62,830
-------- -------- -------- --------
Net interest income 52,553 52,827 52,891 52,816
Provision for loan losses 179 204 301 --
Other operating income 3,427 3,485 3,029 2,724
Other operating expense 11,422 12,015 11,498 11,052
-------- -------- -------- --------
Income before income taxes 44,379 44,093 44,121 44,488
Income taxes 16,061 15,566 15,373 15,795
-------- -------- -------- --------
</TABLE>
30
<PAGE> 31
<TABLE>
<S> <C> <C> <C> <C>
Net income $ 28,318 $ 28,527 $ 28,748 $ 28,693
======== ======== ======== ========
Basic earnings per share .50 .51 .52 .53
Diluted earnings per share .50 .51 .52 .52
Return on average assets 2.02% 2.00% 2.01% 1.93%
======== ======== ======== ========
</TABLE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Washington Federal, Inc.
Seattle, Washington
We have audited the accompanying consolidated statements of financial
condition of Washington Federal, Inc. and subsidiaries (the Company) as of
September 30, 2000 and 1999 and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended September 30, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Washington Federal, Inc. and
subsidiaries as of September 30, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2000, in conformity with accounting principles generally accepted
in the United States of America.
DELOITTE & TOUCHE LLP
Seattle, Washington
October 20, 2000
GENERAL CORPORATE AND
STOCKHOLDERS' INFORMATION
Corporate 425 Pike Street
Headquarters Seattle, Washington 98101
(206) 624-7930
Independent Deloitte & Touche, LLP
Accountants Seattle, Washington
Special Counsel Elias, Matz, Tiernan & Herrick LLP
Washington, D.C.
Transfer Agent, Stockholder inquiries regarding transfer
Registrar and requirements, cash or stock dividends, lost certificates,
Dividend consolidating records, correcting a name or
Disbursing changing an address should be directed to the transfer
Agent agent:
ChaseMellon Shareholder Services, L.L.C.
Shareholder Relations Department
85 Challenger Road
Ridgefield Park, NJ 07660
31
<PAGE> 32
Telephone: 1-800-522-6645
www.chasemellon.com
Annual Meeting The annual meeting of stockholders will be
held on January 24, 2001, at 2 p.m. at the
Sheraton Hotel, 1400 Sixth Avenue,
Seattle, Washington.
Form 10-K This report is available to stockholders of record upon
written request to:
Cathy Cooper
Vice President
Washington Federal, Inc.
425 Pike Street
Seattle, Washington 98101
Stock Information Washington Federal, Inc. is traded on the NASDAQ
Stock Market. The common stock symbol is WFSL. At
September 30, 2000, there were approximately 2,777
stockholders of record.
<TABLE>
<CAPTION>
Stock Prices
Quarter Ended High Low Dividends
------------- ---- --- ------------
<S> <C> <C> <C>
December 31, 1998 $243 1/64 $20 11/16 $.22
March 31, 1999 25 7/64 21 .22
June 30, 1999 23 5/8 20 5/8 .23
September 30, 1999 25 9/16 22 1/16 .23
December 31, 1999 23 3/4 17 11/16 .24
March 31, 2000 19 1/16 14 15/16 .24
June 30, 2000 21 1/8 16 7/16 .25
September 30, 2000 22 15/16 18 1/4 .25
All prices shown have been
adjusted for stock splits.
Market Makers:
Spear, Leeds & Kellogg
Salomon Smith Barney, Inc.
Bank of America Securities
Merrill Lynch, Pierce,
Fenner & Smith, Inc.
Cantor, Fitzgerald & Co.
Schwab Capital Markets
Knight Securities L.P.
Instinet Corporation
Herzog, Heine, Geduld, Inc.
Sherwood Securities Corp.
Lehman Brothers, Inc.
Keefe, Bruyette & Woods, Inc.
Jefferies & Company, Inc.
Spear, Leeds & Kellogg (ECN)
Sandler O'Neill & Partners
B-Trade Services LLC
Ryan Beck & Co., Inc.
Ragen MacKenzie, Inc.
Fox-Pitt, Kelton, Inc.
</TABLE>
32
<PAGE> 33
DIRECTORS, OFFICERS AND OFFICES
CORPORATE HEADQUARTERS
425 Pike Street
Seattle, WA 98101
(206) 624-7930
BOARD OF DIRECTORS
GUY C. PINKERTON
Chairman
JOHN F. CLEARMAN
Chief Financial Officer,
Milliman & Robertson, Inc.
H. DENNIS HALVORSON
Retired, Former Chief Executive Officer, United Bank
KERMIT O. HANSON
Dean Emeritus
University of Washington
Graduate School of
Business Administration
W. ALDEN HARRIS
Former Executive
Vice President
ANNA C. JOHNSON
Senior Partner
Scan East West Travel
RICHARD C. REED
Management Consultant
Altman Weil, Inc.
CHARLES R. RICHMOND
Executive Vice President
and Secretary
ROY M.WHITEHEAD
President and Chief Executive Officer
DIRECTORS EMERITI
HAROLD C. KEAN
E.W. MERSEREAU, JR.
EXECUTIVE MANAGEMENT COMMITTEE
WILLIAM A. CASSELS
Executive Vice President
EDWIN C. HEDLUND
Executive Vice President
CHARLES R. RICHMOND
Executive Vice President
and Secretary
RONALD L. SAPER
Executive Vice President
and Chief Financial Officer
DEPARTMENT OFFICERS
ROY M. WHITEHEAD
President and
Chief Executive Officer
33
<PAGE> 34
Accounting & Finance
KAREN MEFFORD
Appraisal
KENNETH ROBERTS
JAMES N. IBABAO
Credit Administration- Construction, Land and Multi-Family Loans
JACK JACOBSON
Senior Vice President and
Chief Credit Officer
JAMES E. CADY
Vice President
DALE SULLIVAN
Vice President
Corporate Real Estate and Taxes
KEITH D. TAYLOR
Senior Vice President
and Treasurer
Data Processing
TERRY O. PERMENTER
Vice President
JIM BLACK
JOHN F. GALUS
RIC HEATON
Deposit Operations
BEN A. WHITMARSH
Senior Vice President
CAROLYN J. LOBDELL
Assistant Vice President
MARTY DAVIES
Facilities
KELLY ANGELL
Vice President
Human Resources
ARLINE FONDA
Vice President
KAREN CARLSON
JANET CRANDALL
BOBBY LOUGHLIN
Internal Audit
BARBARA A. MURPHY
Vice President
Loan Operations
MICHAEL BUSH
Vice President
NANCY C. ELLWEIN
Vice President
PATRICIA BAINTER
LEANN BURKE
Loan Servicing
LARRY PLUMB
Vice President
VIVIAN L. YORITA
Vice President
34
<PAGE> 35
MIKE CULALA
LOIS L. KRISTJANSSON
MARY TOMLINSON
Legal
PAUL TYLER
Vice President
Manuals/Training
LINDA NICHOLL
Assistant Vice President
Marketing and Investor Relations
CATHY COOPER
Vice President
Multi-Family Loans
J. TIMOTHY GRANT
Vice President
MARY BAUMEIER
TODD HULL
Permanent Loan Production
JANE A. NOGLE
Senior Vice President
COLLEEN WELLS
Vice President
JOHN WUNDERLICH
Vice President
CHRISTA TULLY
Assistant Vice President
Savings Administration
CYNTHIA L. ARNOLD
Vice President
Special Credits
GEORGE W. CORLEY
Vice President
RUSSELL PETERSON
SUBSIDIARIES
First Insurance Agency, Inc.
317 S. 2nd Street
Mount Vernon, WA 98273
1-800-562-2555
(360) 336-9630
ANN BRITTAIN
Vice President
Washington Services, Inc.
6125 South Morgan Road
Freeland, WA 98249
SOUTHERN WASHINGTON
29 Office Locations
Region Managers
DALE B. CULVER
Vice President
2206 S. 320th
Federal Way, WA 98003
E. CRAIG WILSON
Vice President
5809 196th S.W.
Lynnwood, WA 98036
35
<PAGE> 36
NORTHERN WASHINGTON
10 Office Locations
Division Manager
DOUGLAS A. ROWELL
Senior Vice President
317 S. 2nd Street
Mount Vernon, WA 98273
WESTERN IDAHO
13 Office Locations
Division Manager
ROBERT P. LINK
Senior Vice President
1001 W. Idaho St.
Boise, ID 83702
EASTERN IDAHO
4 Office Locations
Region Manager
LARRY WADSWORTH
Vice President
500 North Capital
Idaho Falls, ID 83402
SOUTHERN OREGON
15 Office Locations
Division Manager
PEGGY HOBIN
Vice President
300 Ellsworth St. SW
Albany, OR 97321
NORTHERN OREGON
9 Office Locations
Region Manager
THOMAS A. FRANKLIN
Vice President
4770 S.W. 76th Ave.
Portland, OR 97225
UTAH
11 Office Locations
Division Manager
RICHARD FISHER
Senior Vice President
505 East 200 South
Salt Lake City, UT 84102
PHOENIX, ARIZONA
8 Office Locations
Division Manager
RON SHERIDAN
Senior Vice President
2196 E. Camelback Road, Suite 100
Phoenix, AZ 85016
TUCSON, ARIZONA
8 Office Locations
Division Manager
PATTY MCCARTHY-HOWARD
Senior Vice President
5151 E. Broadway Blvd., Suite 105
36
<PAGE> 37
Tucson, AZ 85711
NEVADA
1 Office Location
Division Manager
PAMELA K. CALLAHAN
Vice President
9340 Sun City Blvd. #103
Las Vegas, NV 89134
37
