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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
For Quarter Ended December 31, 2000 Commission file number 0-25454
WASHINGTON FEDERAL, INC.
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(Exact name of registrant as specified in its charter)
Washington 91-1661606
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
425 Pike Street Seattle, Washington 98101
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(Address of principal executive offices and Zip Code)
(206) 624-7930
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) Yes [X]. No [ ].
(2) Yes [X]. No [ ].
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
TITLE OF CLASS: AT FEBRUARY 1, 2001
Common stock, $1.00 par value 52,289,533
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART I
Item 1. Financial Statements
The Consolidated Financial Statements of Washington Federal, Inc. and
Subsidiaries filed as a part of the report are as follows:
Consolidated Statements of Financial Condition
as of December 31, 2000 and September 30, 2000 ............................ Page 3
Consolidated Statements of Operations for the three
months ended December 31, 2000 and 1999 ................................... Page 4
Consolidated Statements of Cash Flows for the
three months ended December 31, 2000 and 1999 ............................. Page 5
Notes to Consolidated Financial Statements ................................ Page 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................................... Page 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk ...................... Page 11
PART II
Item 1. Legal Proceedings ............................................................ Page 12
Item 2. Changes in Securities ........................................................ Page 12
Item 3. Defaults upon Senior Securities .............................................. Page 12
Item 4. Submission of Matters to a Vote of Stockholders .............................. Page 12
Item 5. Other Information ............................................................ Page 12
Item 6. Exhibits and Reports on Form 8-K ............................................. Page 12
Signatures ................................................................. Page 13
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
DECEMBER 31, 2000 September 30, 2000
----------------- ------------------
(In thousands, except per share data)
ASSETS
Cash .............................................................. $ 35,031 $ 28,286
Available-for-sale securities, including mortgage-backed
securities of $1,065,370 ....................................... 1,185,398 1,178,317
Held-to-maturity securities, including mortgage-backed
securities of $259,066 ........................................ 285,026 292,780
Loans receivable, net ............................................. 5,103,838 4,949,235
Interest receivable ............................................... 39,978 40,700
Premises and equipment, net ....................................... 51,758 50,487
Real estate held for sale ......................................... 15,981 17,416
FHLB stock ........................................................ 118,214 116,314
Costs in excess of net assets acquired ............................ 40,151 41,577
Other assets ...................................................... 2,058 4,729
----------- -----------
$ 6,877,433 $ 6,719,841
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Customer accounts
Savings and demand accounts ................................... $ 3,404,635 $ 3,375,036
Repurchase agreements with customers .......................... 77,684 90,234
----------- -----------
3,482,319 3,465,270
FHLB advances ..................................................... 2,107,000 1,209,000
Other borrowings, primarily securities sold under agreements
to repurchase ................................................. 353,748 1,154,509
Advance payments by borrowers for taxes and insurance ............. 12,631 29,093
Federal and state income taxes .................................... 75,483 53,012
Accrued expenses and other liabilities ............................ 51,402 49,792
----------- -----------
6,082,583 5,960,676
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value, 100,000,000 shares authorized;
62,446,616 and 62,295,691 shares issued; and 52,271,857
and 52,120,932 shares outstanding ............................ 62,447 62,296
Paid-in capital ................................................... 787,655 785,745
Accumulated other comprehensive income, net of taxes .............. 25,000 3,000
Treasury stock, at cost; 10,174,759 and 10,174,759 shares ......... (190,018) (190,018)
Retained earnings ................................................. 109,766 98,142
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794,850 759,165
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$ 6,877,433 $ 6,719,841
=========== ===========
CONSOLIDATED FINANCIAL HIGHLIGHTS
Stockholders' equity per share .................................... $ 15.21 $ 14.57
Stockholders' equity to total assets .............................. 11.56% 11.30%
Loans serviced for others ......................................... $ 35,572 $ 37,912
Weighted average rates at period end:
Loans and mortgage-backed securities ............................ 7.91% 7.90%
Investment securities* .......................................... 7.81 7.82
Combined rate on loans, mortgage-backed securities
and investment securities ..................................... 7.91 7.90
Customer accounts ............................................... 5.67 5.57
Borrowings ...................................................... 6.26 6.29
Combined cost of customer accounts and borrowings ............. 5.91 5.86
Interest rate spread ............................................ 2.00 2.04
*Includes municipal bonds at tax-equivalent yields
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Quarter Ended December 31,
--------------------------------
2000 1999
----------- -----------
(Dollars in thousands,
except per share data)
INTEREST INCOME
Loans ...................................................... $ 105,502 $ 91,943
Mortgage-backed securities ................................. 23,523 23,894
Investment securities ...................................... 4,396 4,452
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133,421 120,289
INTEREST EXPENSE
Customer accounts .......................................... 48,905 41,286
FHLB advances and other borrowings ......................... 38,513 26,867
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87,418 68,153
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NET INTEREST INCOME ........................................ 46,003 52,136
Provision for loan losses .................................. -- --
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES ........ 46,003 52,136
OTHER INCOME
Gains on sale of securities, net ........................... 1,699 598
OTHER ...................................................... 1,331 1,331
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3,030 1,929
OTHER EXPENSE
Compensation and fringe benefits ........................... 6,179 6,746
FDIC deposit insurance premiums ............................ 168 480
Occupancy expense .......................................... 1,075 1,010
Amortization of costs in excess of net assets acquired ..... 1,426 1,513
Other ...................................................... 2,191 2,196
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11,039 11,945
Gains on real estate owned, net ............................ 37 393
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INCOME BEFORE INCOME TAXES ................................. 38,031 42,513
Income taxes ............................................... 13,478 15,092
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NET INCOME ................................................. $ 24,553 $ 27,421
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PER SHARE DATA
Basic earnings per share ................................... $ .47 $ .51
Diluted earnings per share ................................. .47 .51
Cash dividends ............................................. .25 .24
Weighted average number of shares outstanding,
including dilutive stock options ......................... 52,608,133 54,073,257
Return on average assets ................................... 1.45% 1.77%
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Quarter Ended December 31,
----------------------------
2000 1999
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(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ............................................................. $ 24,553 $ 27,421
Adjustments to reconcile net income to net cash provided by
operating activities
Amortization of fees, discounts and premiums, net .................... (4,115) (4,595)
Amortization of costs in excess of net assets acquired ............... 1,426 1,513
Depreciation ......................................................... 645 570
Gains on investment securities and real estate held for sale ......... (1,736) (991)
Decrease in accrued interest receivable .............................. 722 191
Increase in income taxes payable ..................................... 9,471 16,600
FHLB stock dividends ................................................. (1,900) (1,989)
Decrease (increase) in other assets .................................. 2,671 (1,019)
Increase (decrease) in accrued expenses and other liabilities ........ 1,610 (244)
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Net cash provided by operating activities .............................. 33,347 37,457
CASH FLOWS FROM INVESTING ACTIVITIES
Loans and contracts originated
Loans on existing property ........................................... (246,152) (166,510)
Construction loans ................................................... (91,966) (115,858)
Land loans ........................................................... (33,307) (25,069)
Loans refinanced ..................................................... (13,285) (6,389)
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(384,710) (313,826)
Savings account loans originated ....................................... (842) (611)
Loan principal repayments .............................................. 262,320 242,955
Decrease in undisbursed loans in process ............................... (29,920) (33,053)
Loans purchased ........................................................ (278) (1,077)
Available-for-sale securities purchased ................................ (27,698) (20,232)
Principal payments and maturities of available-for-sale securities ..... 30,184 33,859
Available-for-sale securities sold ..................................... 27,698 12,239
Principal payments and maturities of held-to-maturity securities ....... 7,670 11,545
Proceeds from sales of real estate held for sale ....................... 3,932 2,962
Premises and equipment purchased, net .................................. (1,916) (823)
--------- ---------
Net cash used by investing activities .................................. (113,560) (66,062)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in customer accounts ...................................... 17,049 47,911
Net increase (decrease) in short-term borrowings ....................... 97,239 262,115
Repayments of long-term borrowings ..................................... -- (200,000)
Proceeds from exercise of common stock options ......................... 2,103 353
Dividends .............................................................. (12,971) (12,594)
Treasury stock purchases, net .......................................... -- (36,514)
Decrease in advance payments by borrowers for taxes and insurance ...... (16,462) (15,336)
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Net cash provided by financing activities .............................. 86,958 45,935
INCREASE IN CASH ....................................................... 6,745 17,330
CASH AT BEGINNING OF PERIOD ............................................ 28,286 25,037
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CASH AT END OF PERIOD .................................................. $ 35,031 $ 42,367
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
NON-CASH INVESTING ACTIVITIES
Real estate acquired through foreclosure ............................. $ 2,507 $ 2,915
CASH PAID DURING THE PERIOD FOR
Interest ............................................................. 90,670 68,927
Income taxes ......................................................... -- --
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED DECEMBER 31, 2000
(Unaudited)
NOTE A - Basis of Presentation
The consolidated unaudited interim financial statements included in this report
have been prepared by Washington Federal, Inc. (Company). In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation are reflected in the interim financial
statements. The September 30, 2000 Consolidated Statement of Financial Condition
was derived from audited financial statements.
NOTE B - Cash Dividend Paid
Dividends per share increased to 25 cents for the quarter ended December 31,
2000 compared with 24 cents for the same period one year ago. On January 19,
2001 the Company paid its 72nd consecutive quarterly cash dividend.
NOTE C - Comprehensive Income
The provisions of Statement of Financial Accounting Standards (SFAS) No.
130,"Reporting Comprehensive Income" require that comprehensive income and its
components be disclosed in the financial statements. The Company's comprehensive
income includes all items which comprise net income plus the unrealized holding
gains or losses on available-for-sale securities. In accordance with the
provisions of SFAS No. 130, the Company's total comprehensive income for the
quarters ending December 31, 2000 and December 31, 1999 totaled $46,553,000 and
$14,421,000, respectively. The difference between the Company's net income and
total comprehensive income for these periods equals the change in the net
unrealized gain and loss on securities available-for-sale during the applicable
periods.
Note D - Earnings per Share
The provisions of SFAS No. 128, "Earnings per Share" require the Company to
present both basic and diluted EPS on the face of its statements of operations.
The following table provides a reconciliation of the numerators and denominators
of the basic and diluted computations:
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS
Income available to common
stockholders $24,553,000 52,157,095 $.47
Diluted EPS
Income available to common stockholders
plus assumed conversions $24,553,000 52,608,133 $.47
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE E - Accounting Changes
Effective October 1, 2000, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." As a result of the adoption of
this new accounting standard, the Company's forward contracts to purchase
mortgage-backed securities were designated as cash flow hedges of specific
forecasted purchases of securities. Previously, the Company had accounted for
the fair value of these contracts to purchase as available-for-sale securities
and unrealized gains or losses were recognized as a component of stockholders'
equity through comprehensive income. Under the new accounting standard, being
designated as cash flow hedges, the unrealized gains or losses on forward
contracts are also recognized as a component of stockholders' equity though
comprehensive income until the related forecasted purchase of securities occurs
whereupon the remaining unrealized gains or losses are included in the basis of
the purchased securities. Therefore, there was no material impact upon the
adoption of the new standard and no explicit transition adjustment. The
unrealized gains on forward commitments were $15,200,000 at October 1, 2000 and
$24,500,000 at December 31, 2000.
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Washington Federal, Inc. (Company) is a savings and loan holding company. The
Company's primary operating subsidiary is Washington Federal Savings
(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 December 31, 2000 the Company had a negative one year
maturity gap of approximately 49% of total assets.
The interest rate spread declined to 2.00% at December 31, 2000 from 2.04% at
September 30, 2000. The decline was, in large part, due to the repricing of
deposits at higher rates as they matured during the quarter. During this phase
of the interest rate cycle, the Company chose to leverage the balance sheet and
increase its asset size. As a result, FHLB advances and other borrowed money
increased to an equivalent of 35.8% of total assets at December 31, 2000
compared to 35.2% of total assets at September 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net worth at December 31, 2000 was $794,850,000 or 11.56% of total
assets. This is an increase of $35,685,000 from September 30, 2000, when net
worth was $759,165,000 or 11.30% of total assets. The change in the Company's
net worth includes the impact of $12,971,000 of cash dividends paid and a
$22,000,000 increase in the valuation reserve for available-for-sale securities.
Net worth also increased by $24,553,000 from earnings and $2,103,000 from
proceeds received from the exercise of common stock options. During the quarter
ended December 31, 2000, no additional shares were repurchased under the
Company's ongoing common stock repurchase program which left a total of 2.9
million shares currently authorized by the Board of Directors as available for
repurchase.
The Company's percentage of net worth to total assets is among the highest in
the nation and the Association's regulatory capital ratios are nearly three
times the minimum required under Office of Thrift Supervision ("OTS")
regulations. Management believes this strong net worth position will help
protect earnings against interest rate risk and enable it to compete more
effectively for controlled growth through acquisitions, de novo expansion and
customer deposit increases.
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (continued)
Cash and investment securities amounted to $181,019,000, only a $9,741,000
increase from a quarter ago as the Company continued to emphasize mortgage
lending as its best investment alternative of available funds.
The minimum liquidity levels of the Association are governed by the regulations
of the OTS. Liquidity is defined as the ratio of average cash and eligible
unpledged investment securities and mortgage-backed securities to the sum of
average withdrawable savings plus short-term (one year) borrowings. Currently,
the Association is required to maintain total liquidity at four percent. At
December 31, 2000, total liquidity was 6.29%.
CHANGES IN FINANCIAL POSITION
AVAILABLE-FOR-SALE AND HELD-TO-MATURITY SECURITIES. The Company purchased and
sold $27,698,438 of mortgage-backed securities during the first quarter of
fiscal 2001, all of which had been categorized as available-for-sale. As of
December 31, 2000, the Company had unrealized gains of $25,000,000 in
available-for-sale securities, net of tax, which are recorded as part of
stockholders' equity.
LOANS RECEIVABLE. Loans receivable increased 3% during the quarter to
$5,103,838,000 at December 31, 2000 from $4,949,235,000 at September 30, 2000.
The Company evaluates loans that will not be repaid in accordance with their
contractual terms using a discounted cash flow methodology or the fair value of
the collateral for certain loans. Smaller balance loans are excluded with
limited exceptions. At December 31, 2000, the Company's recorded investment in
impaired loans was $13,742,000 of which $4,537,000 had allocated reserves of
$1,856,000. The average balance of impaired loans during the quarter was
$13,755,000 and interest income (cash received) from impaired loans was
$335,000.
COSTS IN EXCESS OF NET ASSETS ACQUIRED. The Company periodically monitors these
assets for potential impairment of which there was none at December 31, 2000.
The Company will continue to evaluate these assets and, if appropriate, provide
for any diminution in value.
CUSTOMER ACCOUNTS. Customer accounts increased slightly by $17,049,000, or less
than 1%, to $3,482,319,000 at December 31, 2000 compared to $3,465,270,000 at
September 30, 2000.
FHLB ADVANCES AND OTHER BORROWINGS. Total borrowings increased to
$2,460,748,000. See Interest Rate Risk above.
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS
Net interest income decreased $6,133,000 (12%) to $46,003,000 for the December
2000 quarter from $52,136,000 one year ago. This decrease was due, in large
part, to the decrease in the net interest spread to 2.00% at December 31, 2000
compared to 2.04% at September 30, 2000 and 2.62% at December 31, 1999.
Interest income on loans increased $13,559,000 (15%) to $105,502,000 for the
quarter ended December 31, 2000 from $91,943,000 one year ago. The increase is
primarily due to the increase in the average balance of loans from
$4,432,349,000 during the first fiscal quarter of 1999 to $5,025,665,000 during
the most recent quarter. Average interest rates on loans increased to 8.40% from
8.30% one year ago.
Interest income on mortgage-backed securities decreased slightly by $371,000
(2%) to $23,523,000 for the quarter ended December 31, 2000 versus $23,894,000
in the same period one year ago. The average balance declined slightly while the
weighted average yield remained essentially the same as one year ago. Average
mortgage-backed securities totaled $1,309,949,000 with a yield of 7.18% in the
most recent quarter compared to $1,334,401,000 at 7.16% in the corresponding
quarter in fiscal 2000. The Company purchases mortgage-backed securities to
supplement single family loan origination when additional growth is desired.
Interest on investments decreased only $56,000 (1%) in the quarter versus the
year ago quarter. The weighted average yield increased to 7.08% at December 31,
2000 compared with 6.87% at December 31, 1999, however, the combined investment
securities and FHLB stock portfolio increased to an average balance of
$257,366,000 for the most recent quarter compared to $252,309,000 in the
corresponding quarter one year ago.
Interest expense on customer accounts increased $7,619,000 (18%) for the quarter
ended December 31, 2000 from $41,286,000 for the same period one year ago. While
the increase in customer accounts of $17,049,000 represented less than 1%
growth, the weighted average rate paid to depositors increased substantially to
5.60% from 4.81% paid in the corresponding quarter of fiscal 2000. The federal
funds target rate increased 125 basis points during the past year resulting in a
substantial increase in the Company's funding costs.
Interest on FHLB advances and other borrowings increased $11,646,000 (43%) to
$38,513,000 for the December 2000 compared to $26,867,000 for the corresponding
quarter one year ago. The substantial increase was partially due to the
Company's funding of loan growth which increased average borrowings to
$2,403,528,000 in the most recent quarter from $1,915,210,000 one year ago. The
average rate paid during the first fiscal quarter of 2001 increased to 6.41%
from 5.61% one year ago as the Federal Reserve continued its tightening posture
throughout the past 12 months.
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS (continued)
The Company determined the adequacy of the allowance for loan losses as it has
in the past and concluded a provision would not be required for the most recent
quarter. Net charge offs amounted to only $519,000 or .01% of average loans for
the first fiscal quarter of 2001 as the Company continues to operate in very
strong economic markets. Non-performing assets amounted to $31,819,000 or .46%
of total assets at December 31, 2000.
Other income increased $1,101,000 (57%) for the December 2000 quarter compared
to the December 1999 quarter. The increase was entirely the result of increased
gains on sale of available-for-sale securities which increased from $598,000 in
the first fiscal quarter of 2000 to $1,699,000 in the first fiscal quarter of
2001.
Other expense declined $906,000 or 8% from the year ago period as FDIC insurance
premiums were reduced 65% to $168,000 from $480,000 in the first fiscal quarter
of 2000. Compensation and fringe benefits declined $567,000 from the
corresponding quarter one year ago as claims drawn on the Company's self-funded
insurance program decreased and employee incentive program accruals were
reduced. The total number of staff, including part-time employees on a full-time
equivalent basis, remained at 700 at both December 31, 2000 and 1999. The
Company's general and administrative expenses, excluding goodwill amortization,
equaled .65% and .77% of average total assets at December 31, 2000 and 1999,
respectively.
Income taxes decreased $1,614,000 (11%) in the December 2000 quarter due to a
lower taxable income base. The effective tax rate was 35.4% for the December
2000 quarter and 35.5% for the December 1999 quarter.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have not been any material changes in quantitative and qualitative
information about market risk since the year ended September 30, 2000.
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time the Company or its subsidiaries are engaged in legal
proceedings in the ordinary course of business, none of which are considered to
have a material impact on the Company's financial position or results of
operations.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Not applicable
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
/s/ Roy M. Whitehead
February 05, 2001 ----------------------------------------
ROY M. WHITEHEAD
President and Chief Executive Officer
/s/ Ronald L. Saper
February 05, 2001 ----------------------------------------
RONALD L. SAPER
Executive Vice-President and Chief
Financial Officer (principal financial
and accounting officer)
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