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Exhibit 13
TABLE OF CONTENTS
Financial Highlights 1
To Our Stockholders 2
Management's Discussion 4
Selected Financial Data 8
Financial Statements 9
Notes to Financial Statements 14
Independent Auditors' Report 29
General Information 29
Directors, Officers and Offices 30
A SHORT HISTORY
Washington Federal, Inc. (Company) is a savings and loan holding company
headquartered in Seattle, Washington. Its principal subsidiary is Washington
Federal Savings (Association), which operates 119 offices in eight 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 (FHLB) 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 wider geographical acceptance. In
1971, Seattle Federal Savings and Loan Association, with three offices, 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.
On November 9, 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.
In 1991, the Association added three branches with the acquisition of First
Federal Savings and Loan Association of Idaho Falls, Idaho, and acquired the
deposits of First Western Savings Association of Las Vegas, Nevada, in Portland
and Eugene, Oregon, where they were doing business as Metropolitan Savings
Association. In 1993, 10 branches were added with the acquisition of First
Federal Savings Bank of Salt Lake City, Utah. In 1994, the Association expanded
into Arizona.
In 1995, the stockholders approved a reorganization whereby Washington
Federal Savings became a wholly owned subsidiary of a newly formed holding
company, Washington Federal, Inc. That same year, the Association purchased West
Coast Mutual Savings Bank with its one branch in Centralia, Washington, and
opened six additional branches. In 1996, the Association acquired Metropolitan
Bancorp of Seattle, adding eight offices in Washington in addition to opening
four branches in existing markets. Between 1997 and 1999, Washington Federal
Savings continued to develop its branch network, opening a total of seven
branches and consolidating three offices into existing locations.
In 2000, the Association expanded into Las Vegas, opening its first branch
in Nevada along with two branches in Arizona. In 2001, the Association opened
two additional branches in Arizona and its first branch in Texas with an office
in the Park Cities area of Dallas. In 2002, Washington Federal Savings opened
five full-service branches in existing markets and entered Colorado with a loan
production office. In 2003, the Association purchased United Savings and Loan
Bank with its four branches in the Seattle metropolitan area, added one new
branch in Puyallup, Washington and consolidated one branch in Nampa, Idaho.
The Association obtains its funds primarily through savings deposits from
the general public, from repayments of loans, 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 small multi-family
housing units, 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.
FINANCIAL HIGHLIGHTS
September 30, 2003 2002 % Change
- ------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Assets ............................................................ $7,535,975 $7,392,441 +2%
Cash and cash equivalents ......................................... 1,437,208 975,153 +47
Investment securities ............................................. 310,218 117,417 +164
Loans receivable and securitized assets subject to repurchase ..... 4,817,508 5,047,964 -5
Mortgage-backed securities ........................................ 648,146 970,284 -33
Customer accounts ................................................. 4,577,598 4,521,922 +1
FHLB advances and other borrowings ................................ 1,750,000 1,750,000 --
Stockholders' equity .............................................. 1,055,596 960,718 +10
Net income ........................................................ 145,544 143,954 +1
Diluted earnings per share ........................................ 2.07 2.04 +1
Dividends per share ............................................... 0.86 0.82 +5
Stockholders' equity per share .................................... 14.83 13.75 +8
Shares outstanding ................................................ 71,173 69,895 --
Return on average stockholders' equity ............................ 15.60% 16.89% --
Return on average assets .......................................... 2.00 2.05 --
Efficiency ratio .................................................. 16.51 17.57 --
TOTAL ASSETS
[BAR GRAPH]
STOCKHOLDERS' EQUITY
[BAR GRAPH]
NET INCOME PER DILUTED SHARE
[BAR GRAPH]
CASH DIVIDENDS PER SHARE
[BAR GRAPH]
RETURN ON AVERAGE EQUITY
[BAR GRAPH]
INTEREST RATE SPREAD
[BAR GRAPH]
1
TO OUR STOCKHOLDERS
Dear Stockholder:
It is a privilege to report that your company achieved outstanding financial
results again last year. While net income of $145,544,000 represented a modest
1.1% increase over fiscal 2002, it was nonetheless our best year ever. This is
the 19th time in 21 years as a public entity that your company has reported an
increase in operating results over the prior year. Earnings per share also
improved to a record $2.07, a 1.5% increase over last year. Return on assets
reached the "gold standard" for our industry of 2.00%, while return on equity
amounted to a respectable 15.60%. Continued strong earnings also enabled the
board of directors to increase your cash dividend for the 38th time since 1982
to an annualized $.88 per share.
During the year, your company's balance sheet also strengthened. Assets grew
to $7.536 billion and capital exceeded $1 billion at fiscal year-end for the
first time. The quality of the company's assets remained high. Recent industry
reports credit Washington Federal with the lowest ratio of past due loans among
the largest mortgage servicing companies in the nation, while non-performing
assets declined by 19% to $27 million, and net charge-offs fell to $1.2 million,
the lowest in three years. Due to management's decision to invest cautiously
given historically low interest rates, liquid assets continued to increase. At
year-end, over $1.5 billion of the company's assets were invested very
short-term, representing a potentially significant increase in future revenues.
With three times the minimum capital required by our regulators, strong
earnings, unprecedented liquidity and excellent asset quality, we continue to
believe that we are indeed "One of America's Strongest Financial Institutions".
Having said all that, it's equally important to note that the past two years
of peak financial performance occurred in a favorable climate for our business.
It would seem imprudent to expect such conditions to persist indefinitely. For
example, abnormally high prepayments of mortgage loans and mortgage backed
securities during each of the past two years caused a temporary surge in
interest income. This occurred because deferred revenues, primarily loan fees
collected at origination and securities discounts that normally amortize over a
longer period of time, were accelerated into current accounting periods. The
company has also benefited from a very steep yield curve, meaning a historically
wide spread between short and long-term interest rates, which we know from hard
experience won't last forever. In 2003, we also reached a cyclical top in the
demand for mortgage loans. With the passing of the refinance boom, we are
already experiencing a slowdown in the mortgage market and we expect intensified
price competition until the hangover of excess capacity in the industry melts
away.
The good news is that, in choosing not to maximize current earnings, the
flexibility to take advantage of changing market conditions was preserved.
During the past year we focused on building liquidity and increasing net worth
as a percentage of assets. This approach had a cost to current earnings, but
offered the benefit of less interest rate risk and the potential for higher
earnings in the future than we might otherwise have achieved. With interest
rates higher at present, it appears that we will have the opportunity to invest
at better rates than we could have during recent quarters. Therefore, we believe
that your company is well positioned to continue its long tradition of
outperforming the industry.
On August 31st, the acquisition of United Savings and Loan Bank was
finalized. This was our first acquisition since 1996, and added $344 million in
assets and $268 million in deposits. United was established in 1960 to provide
financial services to immigrants to Seattle from Asian countries, primarily
China, who at that time had difficulty accessing the banking system. It is a
privilege to welcome the employees and customers of this unique company to
Washington Federal. With the addition of four United branches in Seattle, one
new office in Puyallup, Washington, and the consolidation of one office in
Nampa, Idaho, the branch count at year-end totaled 119.
During the year, we also completed a management transition that has been
underway for many years. Linda Brower, who joined us in January to head Human
Resources, was recently promoted to Executive Vice President. Brent Beardall, in
his third year with Washington Federal, was promoted to Senior Vice President
and Chief Financial Officer. Linda and Brent join Ed Hedlund, Jack Jacobson and
myself on the Executive Management Committee. My hope is that this outstanding
group of executives will work with the board and me to lead and manage the
company for the next ten to fifteen years.
Recently, we also added two new members to the Board of Directors. Derek
Chinn, former President & CEO of United Savings and Loan Bank joined the board
in September. Tom Kenney, VP Finance and the principal financial officer of
Haggen, Inc., a Bellingham, Washington based grocery store chain, joined the
board in October. Prior to joining Haggen,
2
[GROUP PHOTO]
(Standing - left to right) Edwin C. Hedlund, Executive Vice President and
Secretary, Roy M. Whitehead, Vice Chairman, President and Chief Executive
Officer, Linda S. Brower, Executive Vice President, (Seated - left to right)
Jack B. Jacobson, Executive Vice President and Chief Lending Officer, Brent J.
Beardall, Senior Vice President and Chief Financial Officer.
Inc. in 1996, Mr. Kenney spent 20 years in the financial services industry. Both
new directors will serve on the board's Audit Committee and possess the
financial literacy necessary to represent shareholder interests in that
important capacity. I thank them both for their willingness to serve during a
time when so much is expected of directors.
Alas, some good people are moving on, too. At the Annual Meeting in January,
2004 Kermit Hanson, Dean Emeritus of the Graduate School of Business at the
University of Washington and a director since 1966, will retire from the Board.
I hope that you will take a moment at the meeting to thank him for his 38 years
of outstanding service to the company. I also wish to recognize Ron Saper,
former Executive Vice President, who retired this year after serving 11 years as
your company's Chief Financial Officer. The legacy of Ron's financial discipline
will benefit stockholders for years to come.
In August, Standard & Poor's, in a promotion of sorts, removed Washington
Federal from their Small Cap 600 Index and added our stock to their Mid Cap 400
Index. This was nice recognition of the growth in the market value of your
company, and exposes our stock to a whole new universe of investors. It's
interesting to note that, although we still think of ourselves as a small
company, our current market capitalization of nearly $2 billion places us in the
top 10% of all NASDAQ companies, and in the top 30% of all NYSE companies. Based
on net income last year, our rankings are even higher: top 2% of NASDAQ
companies and top 20% of NYSE companies.
In closing, I wish to thank our customers, employees, stockholders and
directors for their continuing support. Let me also remind you to send your
friends, neighbors and relatives to Washington Federal for their home loans and
savings needs. I hope to see you at the Annual Stockholders' Meeting scheduled
at 2:00 pm, on Wednesday, January 21, 2004 at the Sheraton Hotel in downtown
Seattle, Washington.
Sincerely,
/s/ Roy M. Whitehead
Roy M. Whitehead
Vice Chairman, President and Chief Executive Officer
3
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).
CRITICAL Preparation of financial statements in conformity with accounting
ACCOUNTING principles generally accepted in the United States of America
POLICIES requires the use of estimates and assumptions that affect reported
amounts of certain assets, liabilities, revenues and expenses in
the Company's consolidated financial statements. Accordingly,
estimated amounts may fluctuate from one reporting period to
another due to changes in assumptions underlying estimated values.
The Company has determined that the only accounting policy deemed
critical to an understanding of the consolidated financial
statements of Washington Federal, Inc. relates to the methodology
for determining the valuation of the allowance for loan losses, as
more fully described under "Loans receivable" in Note A to the
Consolidated Financial Statements.
INTEREST The Company accepts a high level of interest rate volatility as a
RATE RISK result of its policy to originate fixed-rate single family home
loans that are longer-term than the short-term characteristics of
its liabilities of customer accounts and borrowed money. At
September 30, 2003, the Company had approximately $1,200,000,000
more liabilities subject to repricing in the next year than assets
subject to repricing, which amounted to a negative maturity gap of
16% of total assets, compared to a negative maturity gap of 26% in
the prior year. The Company's interest rate risk approach has
never resulted in the recording of a monthly operating loss.
The Company's net interest spread decreased from 3.01% at
September 30, 2002 to 2.47% at September 30, 2003. The spread
decreased primarily from record low interest rates on mortgages,
as well as a continued shift in the asset mix toward shorter-term
assets. As of September 30, 2003, 19.1% of the Company's assets
were in short-term investments.
During this phase of the interest rate cycle the Company chose to
build cash, reduce the amount of loans and mortgage-backed
investments and maintain customer deposits with little or no
growth. As of September 30, 2003, the Company had accumulated
$1,437 million in cash and cash equivalents, which can be invested
long-term in the future to generate additional revenues. This cash
position was generated principally through the net runoff of loans
and mortgage-backed investments of $441 million and $94 million of
cash provided by the acquisition of United Savings and Loan Bank
(United).
ASSET The Company maintains an allowance to absorb losses inherent in
QUALITY 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 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.
Multi-family loans, builder construction loans and certain other
loans are reviewed on an individual basis 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
are downgraded and, if warranted, placed on non-accrual status.
The Company has an Asset Quality Review Committee that reports the
results of its internal reviews to the Board of Directors on a
quarterly basis.
Non-performing assets were $27,434,000, or .36% of total assets at
September 30, 2003 compared to $33,876,000, or .46% of total
assets at September 30, 2002. Total delinquencies over 30 days
were $34,736,000, or .46% of total assets at September 30, 2003
compared to $37,419,000, or .51% of total assets at September 30,
2002. The aforementioned asset quality indicators, when compared
to others in the industry, demonstrate the continued excellent
quality of the loan portfolio.
LIQUIDITY The Company's net worth at September 30, 2003 was $1,055,596,000,
AND CAPITAL or 14.0% of total assets. This is an increase of $94,878,000 from
RESOURCES September 30, 2002 when net worth was $960,718,000, or 13.0% of
total assets. The Company's net worth increased due in part to net
income of $145,544,000, proceeds received from the exercise of
common stock options of $4,726,000, purchases by the Employee
Stock Ownership Plan of $1,522,000 and acquisition-related stock
issuances of $33,282,000. Net worth was reduced by $60,004,000 as
a result of cash dividends paid, a decrease in unrealized gains on
available-for-sale securities of $21,376,000 and $10,034,000 of
stock repurchases. The ratio of net worth to total assets remains
at a high level despite the distribution of 41.2% of earnings in
the form of cash dividends.
Washington Federal's percentage of net worth to total assets is
among the highest in the nation and is over 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.
Customer accounts increased $55,676,000, or 1.2% from one year
ago, largely due to the acquisition of $269,924,000 of deposits in
connection with the United merger, offset by net runoff of
existing deposits of $214,248,000. Management's strategy during
this phase of the interest rate cycle has been to keep deposit
growth to a minimum until excess cash is deployed into higher
yielding investments.
The Company's cash and cash equivalents amounted to $1,437,208,000
at September 30, 2003, a significant increase from $975,153,000
one year ago. This continued shift in the balance sheet from
long-term assets to short-term assets resulted from the decision
to position the balance sheet to protect against the possibility
of rising interest rates in the future. See "Interest Rate Risk"
above.
4
CHANGES IN AVAILABLE-FOR-SALE AND HELD-TO-MATURITY SECURITIES. The Company
FINANCIAL purchased $559,995,000 of mortgage-backed and investment
POSITION securities during fiscal 2003, $459,895,000 of which have been
categorized as available-for-sale and $100,100,000 of which have
been classified as held-to-maturity.
The Company had $80,000,000 in sales of available-for-sale
securities, resulting in a net realized gain of $992,000. As of
September 30, 2003, the Company had unrealized gains in its
available-for-sale portfolio of $34,624,000, net of tax, which are
recorded as part of stockholders' equity.
LOANS RECEIVABLE AND SECURITIZED ASSETS SUBJECT TO REPURCHASE.
Loans receivable and securitized assets subject to repurchase
decreased 4.6% to $4,817,508,000 at September 30, 2003 from
$5,047,964,000 one year earlier. The decrease resulted from
Management's decision not to aggressively compete based on price
during periods of increased refinancing activity caused by record
low home mortgage rates. The allowance for losses on loans and
securitized assets subject to repurchase increased $1,894,000
during the year as a result of the United acquisition, which added
$1,597,000 in allowance, and provision in excess of net
charge-offs of $297,000. The growth in the total allowance
resulted primarily from the acquisition of United and changes in
both the geographic mix and loan mix of the portfolio. The
percentage of loans outside of Washington, Idaho, Oregon, Utah and
Arizona increased to 10.5% at September 30, 2003 from 1.6% one
year earlier as a result of the purchase of $418,000,000 of whole
loans on residences primarily in California. Construction and land
loans increased to 16.5% of the portfolio at September 30, 2003
from 14.1% at September 30, 2002. The amount of reserves
allocated to impaired loans increased to $1,000,000 at September
30, 2003 from no allocation in the prior year based on the
estimated value of the underlying collateral of the impaired
loans.
REAL ESTATE HELD FOR SALE. The balance at September 30, 2003 was
$16,204,000, a decrease from $17,587,000 reported one year ago.
FHLB STOCK. FHLB stock amounted to $143,851,000 at September 30,
2003 compared with $132,320,000 one year ago. The Company received
$8,155,000 in stock dividends during the year and $3,376,000 in
stock that was acquired from United.
INTANGIBLE ASSETS. On August 31, 2003, the Company acquired
United. The acquisition produced goodwill of $19,263,000, a core
deposit intangible of $4,921,000 and a non-compete agreement
intangible of $575,000. As a result, goodwill increased to
$54,966,000 at September 30, 2003 compared to $35,703,000 one year
ago. Additionally, the unamortized balance of the core deposit
intangible and the non-compete agreement intangible were
$4,805,000 and $565,000, respectively, at September 30, 2003.
OTHER ASSETS. Other assets increased $10,682,000 to $12,073,000 at
September 30, 2003 from a commitment the Company made to invest a
total of $10,000,000 into a partnership to provide low-income
housing. As of September 30, 2003, only $100,000 had been
invested. Current accounting rules require that the total amount
of the unfunded investment commitment, $9,900,000, be reported as
both an other liability and an other asset.
CUSTOMER ACCOUNTS. Customer accounts at September 30, 2003 totaled
$4,577,598,000 compared with $4,521,922,000 at September 30, 2002,
a 1.2% increase. See "Liquidity and Capital Resources" above.
FHLB ADVANCES AND OTHER BORROWINGS. Total borrowings of
$1,750,000,000 at September 30, 2003 remained unchanged from one
year ago. See "Interest Rate Risk" above.
RESULTS OF GENERAL
OPERATIONS Fiscal 2003 net income increased 1% from fiscal 2002. See Note S,
"Selected Quarterly Financial Data (Unaudited)," which highlights
the quarter-by-quarter results for the years ended September 30,
2003 and 2002.
Dec 31 Mar 31 Jun 30 Sep 30 Dec 31 Mar 31 Jun 30 Sep 30
2001 2002 2002 2002 2002 2003 2003 2003
--------------------------------------------------------------
Interest rate on loans and
mortgage-backed securities* ............ 7.49% 7.41% 7.35% 7.26% 7.10% 6.94% 6.68% 6.40%
Interest rate on
investment securities** ................ 5.50 3.19 3.09 2.82 2.29 2.28 2.00 1.98
--------------------------------------------------------------
Combined ............................... 7.37 6.96 6.89 6.53 6.06 5.84 5.49 5.28
Interest rate on customer accounts ....... 3.78 3.25 3.16 2.94 2.65 2.42 2.19 1.96
Interest rate on borrowings .............. 5.24 5.24 5.24 5.03 5.03 5.03 5.03 5.03
--------------------------------------------------------------
Combined ............................... 4.16 3.76 3.69 3.52 3.32 3.16 3.00 2.81
--------------------------------------------------------------
Interest rate spread ..................... 3.21% 3.20% 3.20% 3.01% 2.74% 2.68% 2.49% 2.47%
==============================================================
* Includes securitized assets subject to repurchase
**Includes municipal bonds at tax-equivalent rates and cash
equivalents
The interest rate spread decreased during fiscal 2003 from 3.01%
at September 30, 2002 to 2.47% at September 30, 2003. See
"Interest Rate Risk" above.
COMPARISON OF FISCAL 2003 RESULTS WITH FISCAL 2002
Interest income on loans, securitized assets subject to repurchase
and mortgage-backed securities decreased $66,203,000 (13.7%) in
fiscal 2003 from 2002 as interest rates declined to 6.40% from
7.26% one year ago. The Company originated $1,867,112,000 in
loans, which was more than offset by loan repayments and payoffs
of
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
$2,604,297,000 in fiscal 2003. Interest income benefited from
$44.5 million of net accretion of loan fees and discounts on
mortgage-backed securities during fiscal 2003, an increase of
$15.6 million from the prior year caused by record prepayments of
mortgages and related securities. If prepayment speeds return to
historical levels, this additional accretion will subside.
Interest and dividend income on investment securities and cash
equivalents increased $11,428,000 (50.7%) in fiscal 2003 from
fiscal 2002. Rates declined to 1.98% at September 30, 2003
compared with 2.82% at September 30, 2002. The combined
investment securities, cash equivalents and FHLB stock portfolio
increased 56.4% to $1,839,847,000 at September 30, 2003 versus
$1,176,737,000 one year ago.
Interest expense on customer accounts decreased 30.4% to
$105,919,000 for fiscal 2003 from $152,288,000 for fiscal 2002.
The decrease related to a small increase in customer accounts to
$4,577,598,000 from $4,521,922,000 the prior year, coupled with a
significant decrease in the cost of customer accounts to 1.96% at
year end compared to 2.94% one year ago.
Interest expense on FHLB advances and other borrowings increased
to $88,965,000 in fiscal 2003 from $82,653,000 in fiscal 2002
primarily due to an increase in average borrowings to
$1,750,648,000 as of September 30, 2003 from $1,568,220,000 one
year ago. The average cost of borrowings as of September 30, 2003
remained constant at 5.03% from one year ago.
The provision for loan losses was $1,500,000 for fiscal 2003
compared to $7,000,000 in fiscal 2002. This decrease reflects the
continued decline in the amount of the loan portfolio combined
with strong asset quality indicators. Non-performing assets
remained low at $27,434,000, or .36% of total assets at September
30, 2003 compared with $33,876,000, or .46% of total assets at
September 30, 2002. Management believes the allowance for loan
losses, totaling $25,806,000, or 94% of non-performing assets, is
adequate to absorb estimated losses inherent in the portfolio.
Total other income increased $6,929,000 (85.7%) in fiscal 2003
from fiscal 2002. This increase is primarily the result of fee
income related to prepayments and the refinancing of mortgage
loans and a $3,382,000 gain on the sale of real estate. Net gains
on the sale of securities totaled $992,000 in fiscal 2003 compared
to $765,000 in fiscal 2002.
Total other expense decreased $4,812,000 (9.8%) in fiscal 2003
over fiscal 2002. Compensation expense decreased $3,213,000 in
fiscal 2003, primarily attributable to a larger bonus being paid
to all employees in fiscal 2002 versus fiscal 2003. Routine
operating expenses, including data processing, decreased
$2,044,000 in fiscal 2003 due to reduced depreciation expense of
$422,000 and general cost containment measures. Personnel,
including part-time employees considered on a full-time equivalent
basis, increased to 754 at September 30, 2003 compared to 726 at
September 30, 2002. The branch network increased to 119 offices at
September 30, 2003 versus 115 offices one year ago. The United
acquisition added 36 full-time equivalent employees and four
branches. Other expense for fiscal 2003 equaled .61% of average
assets compared with .70% in fiscal 2002.
Income tax expense increased $621,000 (0.8%) in fiscal 2003. The
effective tax rate was 35.19% for fiscal 2003 versus 35.25% for
fiscal 2002.
COMPARISON OF FISCAL 2002 RESULTS WITH FISCAL 2001
Interest income on loans, securitized assets subject to repurchase
and mortgage-backed securities decreased $33,792,000 (6.5%) in
fiscal 2002 from 2001 as average interest rates declined to 7.26%
from 7.61% one year ago. The Company originated $1,430,834,000 in
loans, which was more than offset by loan repayments and payoffs
of $1,823,281,000 in fiscal 2002.
Interest and dividend income on investment securities and cash
equivalents increased $4,634,000 (25.9%) in fiscal 2002 from
fiscal 2001. The weighted-average yield declined to 2.82% at
September 30, 2002 compared with 7.79% at September 30, 2001. The
combined investment securities, cash equivalents and FHLB stock
portfolio increased 336% to $1,176,737,000 at September 30, 2002
versus $270,085,000 one year ago.
Interest expense on customer accounts decreased 21.8% to
$152,288,000 for fiscal 2002 from $194,710,000 for fiscal 2001.
The decrease related to an increase in customer accounts to
$4,521,922,000 from $4,316,692,000 the prior year coupled with a
significant decrease in the average cost of customer accounts to
2.94% at year end compared to 4.31% one year ago.
Interest expense on FHLB advances and other borrowings decreased
to $82,653,000 in fiscal 2002 from $125,410,000 in fiscal 2001
primarily due to a decline in average borrowings to $1,568,220,000
as of September 30, 2002 from $2,264,001,000 one year ago. This
decrease in average volume was coupled with a decrease in average
rates to 5.03% as of September 30, 2002 from 5.09% at September
30, 2001.
The provision for loan losses was $7,000,000 for fiscal 2002
compared to $1,850,000 in fiscal 2001. This increase reflects the
continued decline in economic conditions in the markets the
Company serves, including high unemployment levels and a slowdown
in the home construction market in the Pacific Northwest. However,
non-performing assets remained low at $33,876,000, or .46% of
total assets at September 30, 2002 compared with $33,758,000, or
.48% of total assets at September 30, 2001. Management believes
the allowance for loan losses, totaling $23,912,000, or 71% of
non-performing assets, is adequate to absorb estimated losses
inherent in the portfolio.
Total other income decreased $1,648,000 (16.9%) in fiscal 2002
from fiscal 2001. Net gains on the sale of securities totaled
$765,000 in fiscal 2002 compared to $3,235,000 in fiscal 2001. The
decline was partially offset by a one time gain of $515,000 on the
disposition of a branch in fiscal 2002.
Total other expense increased $2,050,000 (4.4%) in fiscal 2002
over fiscal 2001. Compensation expense increased $5,776,000 in
fiscal 2002, primarily attributable to a bonus paid to all
employees based on improved
6
operating results (adjusted by goodwill amortization); however,
this was offset by the elimination of goodwill amortization
expense of $5,875,000 over fiscal 2001. Routine operating
expenses, including data processing, increased $1,868,000 in
fiscal 2002 largely due to the installation of a new teller
system. Personnel, including part-time employees considered on a
full-time equivalent basis, increased to 726 at September 30, 2002
compared to 714 at September 30, 2001. The branch network
increased to 115 offices at September 30, 2002 versus 111 offices
one year ago. Other expense for fiscal 2002 equaled .70% of
average assets compared with .68% in fiscal 2001.
Income tax expense increased $16,550,000 (26.8%) in fiscal 2002.
The effective tax rate was 35.25% for both fiscal 2002 and 2001.
7
SELECTED FINANCIAL DATA
Year ended September 30, 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Interest income ............................. $450,185 $504,960 $534,118 $495,949 $453,620
Interest expense ............................ 194,884 234,941 320,120 299,511 244,490
----------------------------------------------------
Net interest income ......................... 255,301 270,019 213,998 196,438 209,130
Provision for loan losses ................... 1,500 7,000 1,850 -- 684
Other income ................................ 14,823 8,206 10,137 11,309 12,779
Other expense ............................... 44,059 48,871 46,821 44,568 44,144
----------------------------------------------------
Income before income taxes ................ 224,565 222,354 175,464 163,179 177,081
Income taxes ................................ 79,021 78,400 61,850 57,500 62,795
----------------------------------------------------
Net income ................................ $145,544 $143,954 $113,614 $105,679 $114,286
====================================================
Per share data
Basic earnings ............................ $2.09 $2.06 $1.63 $1.51 $1.55
Diluted earnings .......................... 2.07 2.04 1.61 1.50 1.54
Cash dividends ............................ 0.86 0.82 0.77 0.74 0.68
September 30, 2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------
(In thousands)
Total assets ................................ $7,535,975 $7,392,441 $7,026,743 $6,719,841 $6,163,503
Loans and mortgage-backed securities* ....... 5,465,654 6,018,248 6,570,309 6,277,340 5,731,644
Investment securities** ..................... 1,696,169 1,044,417 145,724 142,992 141,753
Customer accounts ........................... 4,577,598 4,521,922 4,316,692 3,465,270 3,379,502
FHLB advances ............................... 1,650,000 1,650,000 1,637,500 1,209,000 1,454,000
Other borrowings ............................ 100,000 100,000 30,000 1,154,509 454,257
Stockholders' equity ........................ 1,055,596 960,718 874,009 759,165 750,023
Number of
Customer accounts ......................... 217,785 213,404 211,570 191,343 189,419
Mortgage loans ............................ 33,975 38,096 42,032 41,741 40,104
Offices ................................... 119 115 111 108 107
* Includes securitized assets subject to repurchase
** Includes cash equivalents
8
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 2003 2002
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
ASSETS
Cash and cash equivalents, including repurchase agreements of $1,350,000 and $925,000 .................. $1,437,208 $ 975,153
Available-for-sale securities, including encumbered securities of $76,921 and $114,583, at fair value .. 804,186 918,776
Held-to-maturity securities, including encumbered securities of $75,690 and $0, at amortized cost ...... 154,178 168,925
Securitized assets subject to repurchase, net .......................................................... 210,782 755,961
Loans receivable, net .................................................................................. 4,606,726 4,292,003
Interest receivable .................................................................................... 29,489 39,503
Premises and equipment, net ............................................................................ 60,942 55,119
Real estate held for sale .............................................................................. 16,204 17,587
FHLB stock ............................................................................................. 143,851 132,320
Intangible assets ...................................................................................... 60,336 35,703
Other assets ........................................................................................... 12,073 1,391
-------------------------
$7,535,975 $7,392,441
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Customer accounts
Savings and demand accounts .......................................................................... $4,520,051 $4,452,250
Repurchase agreements with customers ................................................................. 57,547 69,672
-------------------------
4,577,598 4,521,922
FHLB advances .......................................................................................... 1,650,000 1,650,000
Other borrowings, primarily securities sold under agreements to repurchase ............................. 100,000 100,000
Advance payments by borrowers for taxes and insurance .................................................. 23,281 22,704
Federal and state income taxes, including net deferred liabilities of $70,485 and $80,185 .............. 70,011 84,235
Accrued expenses and other liabilities ................................................................. 59,489 52,862
-------------------------
6,480,379 6,431,723
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value, 100,000,000 shares authorized, 85,553,789 and 83,833,244
shares issued; 71,173,487 and 69,894,902 shares outstanding .......................................... 85,554 76,212
Paid-in capital ........................................................................................ 1,085,650 968,858
Accumulated other comprehensive income, net of tax ..................................................... 34,624 56,000
Treasury stock, at cost; 14,380,302 and 13,938,342 shares .............................................. (207,337) (198,279)
Retained earnings ...................................................................................... 57,105 57,927
-------------------------
1,055,596 960,718
-------------------------
$7,535,975 $7,392,441
=========================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 9
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended September 30, 2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
INTEREST INCOME
Loans and securitized assets subject to repurchase ...................... $ 353,286 $ 406,262 $ 426,240
Mortgage-backed securities .............................................. 62,911 76,138 89,952
Investment securities ................................................... 33,988 22,560 17,926
------------------------------------------------
450,185 504,960 534,118
INTEREST EXPENSE
Customer accounts ....................................................... 105,919 152,288 194,710
FHLB advances and other borrowings ...................................... 88,965 82,653 125,410
------------------------------------------------
194,884 234,941 320,120
------------------------------------------------
NET INTEREST INCOME ..................................................... 255,301 270,019 213,998
Provision for loan losses ............................................... 1,500 7,000 1,850
------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES ..................... 253,801 263,019 212,148
OTHER INCOME
Gain on sale of securities, net ......................................... 992 765 3,235
Gain on sale of real estate ............................................. 3,382 -- --
Other ................................................................... 10,643 7,323 6,501
------------------------------------------------
15,017 8,088 9,736
OTHER EXPENSE
Compensation and fringe benefits ........................................ 30,846 34,059 28,283
Amortization of intangibles ............................................. 126 -- 5,875
Occupancy expense ....................................................... 5,098 4,778 4,497
Other ................................................................... 7,989 10,034 8,166
------------------------------------------------
44,059 48,871 46,821
Gain (loss) on real estate acquired through foreclosure, net ............ (194) 118 401
------------------------------------------------
INCOME BEFORE INCOME TAXES .............................................. 224,565 222,354 175,464
Income taxes
Current ............................................................... 80,403 79,423 58,641
Deferred .............................................................. (1,382) (1,023) 3,209
------------------------------------------------
79,021 78,400 61,850
------------------------------------------------
NET INCOME $ 145,544 $ 143,954 $ 113,614
================================================
PER SHARE DATA
Basic earnings .......................................................... $ 2.09 $ 2.06 $ 1.63
Diluted earnings ........................................................ 2.07 2.04 1.61
Cash dividends .......................................................... 0.86 0.82 0.77
Weighted average number of shares outstanding,
including dilutive stock options ...................................... 70,232,695 70,523,160 70,461,517
10 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated
Other
Common Paid-in Retained Comprehensive Treasury
Stock Capital Earnings Income Stock Total
- ----------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Balance at October 1, 2000 .................... $ 62,296 $ 785,745 $ 98,142 $ 3,000 $ (190,018) $ 759,165
Eleven-for-ten stock split
distributed February 23, 2001 ............... 6,247 101,767 (108,105) (91)
Comprehensive income:
Net income .................................. 113,614 113,614
Other comprehensive income,
net of tax of $26,131:
Unrealized gains on securities .............. 50,095 50,095
Reclassification adjustment for gains on
securities sold ........................... (2,095) (2,095)
--------
Total comprehensive income .................... 161,614
Dividends ..................................... (54,011) (54,011)
Proceeds from exercise of
common stock options ........................ 459 5,663 6,122
Proceeds from Employee
Stock Ownership Plan ........................ 346 806 1,152
Restricted stock .............................. 4 112 (58) 58
-----------------------------------------------------------------------------------
Balance at September 30, 2001 ................. 69,006 893,633 49,582 51,000 (189,212) 874,009
-----------------------------------------------------------------------------------
Eleven-for-ten stock split
distributed February 22, 2002 ............... 6,905 70,824 (77,792) (63)
Comprehensive income:
Net income .................................. 143,954 143,954
Other comprehensive income,
net of tax of $2,722:
Unrealized gains on securities ............ 5,495 5,495
Reclassification adjustment for gains on
securities sold ......................... (495) (495)
--------
Total comprehensive income .................... 148,954
Dividends ..................................... (57,383) (57,383)
Proceeds from exercise of
common stock options ........................ 282 3,462 3,744
Proceeds from Employee
Stock Ownership Plan ........................ 461 1,157 1,618
Restricted stock .............................. 19 478 (434) 63
Treasury stock purchases ...................... (10,224) (10,224)
-----------------------------------------------------------------------------------
Balance at September 30, 2002 ................. $ 76,212 $ 968,858 $ 57,927 $ 56,000 $ (198,279) $ 960,718
-----------------------------------------------------------------------------------
Eleven-for-ten stock split
distributed February 21, 2003 ............... 7,622 79,612 (87,368) (134)
Comprehensive income:
Net income .................................. 145,544 145,544
Other comprehensive income,
net of tax of $11,637:
Changes in unrealized gains on securities (20,733) (20,733)
Reclassification adjustment for gains on
securities sold ......................... (643) (643)
--------
Total comprehensive income .................... 124,168
Dividends ..................................... (60,004) (60,004)
Proceeds from exercise of
common stock options ........................ 357 4,369 4,726
Tax benefit related to exercise
of stock options ............................ 1,218 1,218
Proceeds from Employee
Stock Ownership Plan ........................ 546 976 1,522
Restricted stock .............................. 14 332 (212) 134
Acquisition-related stock issuance ............ 1,349 31,933 33,282
Treasury stock purchases ...................... (10,034) (10,034)
-----------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2003 ................. $ 85,554 $ 1,085,650 $ 57,105 $ 34,624 $ (207,337) $ 1,055,596
===================================================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 11
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended September 30, 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ........................................................................ $ 145,544 $ 143,954 $ 113,614
Adjustments to reconcile net income to net cash provided by operating activities
Amortization of fees, discounts and premiums, net ............................... (13,850) (6,103) (143)
Amortization of intangible assets ............................................... 126 -- 5,874
Depreciation .................................................................... 3,099 3,521 2,996
Provision for loan losses ....................................................... 1,500 7,000 1,850
Gain on investment securities and real estate held for sale, net ................ (4,180) (883) (3,636)
Decrease (increase) in accrued interest receivable .............................. 9,126 8,777 (7,580)
Increase (decrease) in income taxes payable ..................................... (5,308) (11,883) 15,106
FHLB stock dividends ............................................................ (8,155) (7,959) (8,047)
Decrease (increase) in other assets ............................................. (10,151) (376) 3,714
Increase in accrued expenses and other liabilities .............................. 3,226 1,634 1,436
----------------------------------------------
Net cash provided by operating activities ......................................... 120,977 137,682 125,184
----------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans and contracts originated
Loans on existing property ...................................................... (1,078,374) (892,595) (1,157,278)
Construction loans .............................................................. (487,692) (363,420) (369,808)
Land loans ...................................................................... (163,533) (87,212) (130,161)
Loans refinanced ................................................................ (137,513) (87,607) (86,969)
----------------------------------------------
(1,867,112) (1,430,834) (1,744,216)
Savings account loans originated .................................................. (1,866) (5,765) (3,342)
Loan principal repayments ......................................................... 2,604,297 1,823,281 1,318,784
Increase (decrease) in undisbursed loans in process ............................... 71,804 (13,323) (29,503)
Loans purchased ................................................................... (417,669) (60,874) (2,842)
Available-for-sale securities purchased ........................................... (459,895) (180,683) (89,882)
Principal payments and maturities of available-for-sale securities ................ 487,438 344,986 216,992
Available-for-sale securities sold ................................................ 80,000 10,000 50,282
Held-to-maturity securities purchased ............................................. (100,100) -- --
Principal payments and maturities of held-to-maturity securities .................. 115,812 80,154 45,325
Cash provided by acquisition ...................................................... 94,314 -- --
Proceeds from sales of real estate held for sale .................................. 16,342 19,603 19,268
Premises and equipment purchased, net ............................................. (4,730) (4,398) (6,751)
----------------------------------------------
Net cash provided (used) by investing activities .................................. 618,635 582,147 (225,885)
----------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in customer accounts ...................................... (214,248) 205,230 851,422
Net decrease in short-term borrowings ............................................. -- (117,500) (1,646,009)
Proceeds from long-term borrowings ................................................ -- 200,000 950,000
Proceeds from exercise of common stock options .................................... 5,944 3,744 6,122
Dividends paid .................................................................... (60,004) (57,383) (54,044)
Proceeds from Employee Stock Ownership Plan ....................................... 1,522 1,618 1,152
Treasury stock purchased, net ..................................................... (10,034) (10,224) --
Increase (decrease) in advance payments by borrowers for taxes and insurance ...... (737) (492) (5,897)
----------------------------------------------
Net cash provided (used) by financing activities .................................. (277,557) 224,993 102,746
----------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS ............................................. 462,055 944,822 2,045
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .................................... 975,153 30,331 28,286
----------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR .......................................... $ 1,437,208 $ 975,153 $ 30,331
==============================================
12 SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Year ended September 30, 2003 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------------
(In thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
NON-CASH INVESTING ACTIVITIES
Real estate acquired through foreclosure ........................................ $ 11,771 $ 20,294 $ 18,229
NON-CASH OPERATING ACTIVITIES
Assets securitized, subject to repurchase, net .................................. -- -- 1,388,197
CASH PAID DURING THE YEAR FOR
Interest ........................................................................ 195,360 237,480 322,933
Income taxes .................................................................... 83,878 90,743 45,746
The following summarizes the non-cash activities relating to the acquisition
Fair value of assets and intangibles acquired, including goodwill ............... $ (343,626) $ -- $ --
Fair value of liabilities assumed ............................................... 276,872 -- --
Fair value of stock issued ...................................................... 33,282 -- --
----------------------------------------------
Cash paid out in acquisition .................................................... (33,472) -- --
Plus cash acquired .............................................................. 127,786 -- --
----------------------------------------------
Net cash provided by the acquisition ............................................ $ 94,314 $ -- $ --
==============================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of Washington Federal, Inc. (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 (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 multi-family real estate loans. The Company
conducts its activities from a network of 119 offices located in
Washington, Oregon, Idaho, Utah, Arizona, Nevada, Texas and
Colorado.
CASH AND CASH EQUIVALENTS. Cash and cash equivalents include cash
on hand, amounts due from banks, overnight investments and
repurchase agreements with an initial maturity of three months or
less.
INVESTMENTS AND MORTGAGE-BACKED SECURITIES. The Company accounts
for investments 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 if 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 the accumulated other comprehensive
income component of stockholders' equity.
Management evaluates debt and equity securities for other than
temporary impairment on a quarterly basis based on the securities'
current credit quality, interest rates, term to maturity and
management's intent and ability to hold the securities until the
principal is recovered. Any other than temporary declines in fair
value are recognized in the income statement as loss from
securities.
Premiums and discounts on investments are deferred and recognized
over the life of the asset using the interest method.
Forward contracts to purchase mortgage-backed securities are
recorded at fair value on the balance sheet as available-for-sale
securities. These contracts are designated by the Company as cash
flow hedges of the price risk of the anticipated purchase of
securities. Under cash flow hedge accounting, if specific criteria
are met, the unrealized gains or losses are recognized as a
component of stockholders' equity through 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. To the extent that forward
contracts to purchase securities fail to meet hedging criteria,
including purchasing the mortgage-backed securities within a
specific time frame, the fair value of the contracts will be
included in earnings.
The Company may enter into certain forward contracts to sell
mortgage-backed securities to hedge the price risk in certain
mortgage-backed securities accounted for as available-for-sale
securities. To the extent forward sales contracts meet specific
hedging criteria, the market value change associated with the
contract is recorded through comprehensive income. To the extent
that forward sales contracts fail to meet hedging criteria, the
fair value of the contracts will be recorded in earnings. The
Company records forward purchases and forward sales contracts net,
where it has the legal right of offset, in available-for-sale
securities.
SECURITIZED ASSETS SUBJECT TO REPURCHASE. In March 2001, the
Company transferred some of its permanent single-family
residential loans into a Real Estate Mortgage Investment Conduit
(REMIC). The REMIC then issued securities backed by such loans,
all of which were retained by the Company. The terms of the
transfer of the loans to the REMIC contain a call provision
whereby the Company can repurchase the loans when the outstanding
balance of the pool declines to 15% or less of the original
amount; therefore, the transfer did not qualify as a sale under
generally accepted accounting principles. Accordingly, the
retained interests continue to be accounted for in a manner
similar to loans and are included in the accompanying balance
sheet as securitized assets subject to repurchase.
LOANS RECEIVABLE. Loans receivable more than 90 days past due are
placed on non-accrual 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 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,
current economic conditions, geographic concentrations, seasoning
of the loan portfolio, specific industry conditions, and the
duration of the current business cycle. The recovery of the
14
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 allows for the
estimation risk associated with the formula and specific
allowances.
Impaired loans consist of loans receivable that will not be repaid
in accordance with their contractual terms and are measured using
the fair value of the collateral. Smaller balance loans are
excluded from this analysis.
PREMISES AND EQUIPMENT. Premises and equipment are stated at cost,
less accumulated depreciation. Depreciation is computed on the
straight-line method over the estimated useful lives of the
respective assets. Expenditures are capitalized for betterments
and major renewals. 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.
INTANGIBLE ASSETS. Goodwill represents the excess of the cost of
businesses acquired over the fair value of the net assets
acquired. The core deposit intangible and non-compete agreement
intangible are acquired assets that lack physical substance but
can be distinguished from goodwill. Goodwill is no longer
amortized, but rather is evaluated for impairment on an annual
basis. Other intangible assets are amortized over their estimated
useful lives and are subject to impairment testing when events or
circumstances change. If circumstances indicate that the carrying
value of the assets may not be recoverable, an impairment charge
could be recorded. No impairment of intangible assets has ever
been identified. The Company amortizes the core deposit intangible
on an accelerated basis over its estimated life of seven years;
the non-compete agreement intangible is amortized on a
straight-line basis over its life of five years.
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.
ACCOUNTING FOR STOCK-BASED COMPENSATION. 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. Companies may continue following
rules to recognize and measure compensation as outlined in
Accounting Principles Board (APB) Opinion No. 25, "Accounting for
Stock Issued to Employees", but are now 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. The Company adopted
the disclosure requirements of SFAS No. 123, but continues to
measure its stock-based employee compensation arrangements under
the provisions of APB Opinion No. 25 and related Interpretations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure" which
provides guidance on the transition from the intrinsic value
method of accounting for stock-based employee compensation under
APB Opinion No. 25 to the fair value method described in SFAS No.
123, if a company elects to do so. The Company has elected to
continue to follow the intrinsic value method in accounting for
stock options as provided in APB Opinion No. 25.
The Company has three stock-option employee compensation plans,
which are described more fully in Note N. The fair value of
options granted under the Company's stock option plans is
estimated on the date of grant using the Black-Scholes
option-pricing model which utilizes the weighted-average
assumptions in the following table:
Year ended September 30, 2003 2002 2001
------------------------------------------------------------------------
Annual dividend yield .............. 4.19% 4.00% 4.00%
Expected volatility ................ 28% 27% 34%
Risk-free interest rate ............ 2.63% 3.52% 3.80%
Expected life ...................... 5 YEARS 5 years 5 years
No stock-option employee compensation cost is reflected in net
income, as all options granted had an exercise price equal to the
market value of the underlying common stock on the date of grant,
and the number of shares of each grant is fixed at the grant date.
The following table illustrates the effect on net income and
earnings per share if the Company had applied the fair value
recognition provisions of SFAS No. 123:
Year ended September 30, 2003 2002 2001
----------------------------------------
(In thousands, except per share data)
Net income, as reported ......................................... $145,544 $143,954 $113,614
Deduct: Total stock-based employee compensation expense
included in reported net income, net of related tax effects ... (1,111) (1,149) (738)
-------- -------- --------
Pro forma net income ............................................ $144,433 $142,805 $112,876
Earnings per share:
Basic - as reported ........................................... $ 2.09 $ 2.06 $ 1.63
Basic - pro forma ............................................. 2.07 2.04 1.62
Diluted - as reported ......................................... 2.07 2.04 1.61
Diluted - pro forma ........................................... 2.06 2.02 1.60
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 2003, 2002 AND 2001
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. Significant
estimates reported in the financial statements include the
allowance for loan losses, intangible assets, deferred taxes and
contingent liabilities. Actual results could differ from these
estimates.
In the second quarters of fiscal 2003 and 2002, the Company
declared an eleven-for-ten stock split in the form of a 10% stock
dividend. All share and per share amounts have been adjusted to
reflect these stock dividends.
BUSINESS SEGMENTS. The Company has determined that its current
business and operations consist of one business segment.
ACCOUNTING CHANGES. In April 2003, the FASB issued and the Company
adopted SFAS No. 149, "Amendment of Statement No. 133 on
Derivative Instruments and Hedging Activities". This Statement
amends and clarifies financial accounting and reporting for
derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities". The adoption of SFAS No. 149 did not have a material
impact on the Company's financial statements.
In November 2002, the FASB issued and the Company adopted
Interpretation No. 45 ("FIN 45"), "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others". This interpretation expands
the disclosures to be made by a guarantor in its financial
statements about its obligations under certain guarantees and
requires the guarantor to recognize a liability for the fair value
of an obligation assumed under a guarantee. The adoption of FIN 45
did not have a material impact on the Company's financial
statements.
In January 2003, the FASB issued and the Company adopted
Interpretation No. 46 ("FIN 46"), "Consolidation of Variable
Interest Entities". This interpretation provides new accounting
guidance on how to identify a variable interest entity ("VIE") and
determine when the assets, liabilities, non-controlling interest
and results of operation of a VIE need to be included in a
corporation's consolidated financial statements. The adoption of
FIN 46 did not have a material impact on the Company's financial
statements.
RECLASSIFICATIONS. Certain reclassifications have been made to the
financial statements for years prior to September 30, 2003 to
conform to current year classifications.
16
NOTE B INVESTMENT SECURITIES
September 30, 2003
---------------------------------------------------------------------------------------------------
(In thousands)
Gross Unrealized
Amortized ---------------- Fair
Cost Gains Losses Value Yield
---------------------------------------------------
AVAILABLE-FOR-SALE SECURITIES
Mutual fund investments ...................... $ 170,000 $ -- $ (960) $ 169,040 2.37%
U.S. government and agency securities due
Within 1 year .............................. 96,461 442 (27) 96,876 7.08
1 to 5 years ............................... -- -- -- -- --
5 to 10 years .............................. 10,509 -- (9) 10,500 5.36
Over 10 years .............................. 13,941 5,732 -- 19,673 9.29
---------------------------------------------------
290,911 6,174 (996) 296,089 4.37
---------------------------------------------------
HELD-TO-MATURITY SECURITIES
Tax-exempt municipal bonds due
5 to 10 years .............................. 3,989 371 -- 4,360 8.92
Over 10 years .............................. 10,140 1,216 -- 11,356 8.67
---------------------------------------------------
14,129 1,587 -- 15,716 8.74
---------------------------------------------------
$ 305,040 $ 7,761 $ (996) $ 311,805 4.57%
===================================================
September 30, 2002
---------------------------------------------------------------------------------------------------
(In thousands)
Gross Unrealized
Amortized ---------------- Fair
Cost Gains Losses Value Yield
---------------------------------------------------
AVAILABLE-FOR-SALE SECURITIES
U.S. government and agency securities due
Within 1 year .............................. $ 64,500 $ 245 $ -- $ 64,745 7.80%
1 to 5 years ............................... 15,045 1,314 -- 16,359 6.98
5 to 10 years .............................. 4,745 128 (38) 4,835 7.04
Over 10 years .............................. 9,280 5,350 -- 14,630 10.41
---------------------------------------------------
93,570 7,037 (38) 100,569 7.89
---------------------------------------------------
HELD-TO-MATURITY SECURITIES
Tax-exempt municipal bonds due
5 to 10 years .............................. 3,993 521 -- 4,514 8.92
Over 10 years .............................. 12,855 1,205 (9) 14,051 8.95
---------------------------------------------------
16,848 1,726 (9) 18,565 8.94
---------------------------------------------------
$ 110,418 $ 8,763 $ (47) $ 119,134 8.05%
===================================================
Yields shown in the table above represent tax-equivalent yields,
calculated as 1.49 times the tax-free municipal yield.
$20.0 million in available-for-sale investment securities were
sold in fiscal 2003, resulting in no gain. A $10.0 million
available-for-sale security was sold in fiscal 2002, resulting in
a gain of $650,000. There were no sales of investment securities
during 2001.
NOTE C MORTGAGE-BACKED SECURITIES
September 30, 2003
---------------------------------------------------------------------------------------------------
(In thousands)
Gross Unrealized
Amortized ---------------- Fair
Cost Gains Losses Value Yield
---------------------------------------------------
AVAILABLE-FOR-SALE SECURITIES
GNMA pass-through certificates ............... $ 2,492 $ 8 $ (27) $ 2,473 4.57%
FNMA pass-through certificates ............... 13,851 354 -- 14,205 5.47
FHLMC pass-through certificates .............. 439,711 25,161 (25) 464,847 6.20
FHLMC ........................................ 2,811 67 (10) 2,868 3.87
FNMA ......................................... 1,288 34 (6) 1,316 3.75
Forward contracts ............................ -- 28,975 (6,587) 22,388 --
---------------------------------------------------
460,153 54,599 (6,655) 508,097 6.14
---------------------------------------------------
HELD-TO-MATURITY SECURITIES
GNMA pass-through certificates ............... 41 4 -- 45 9.50
FNMA pass-through certificates ............... 1,332 109 -- 1,441 8.59
FHLMC pass-through certificates .............. 138,676 4,393 (1,185) 141,884 6.25
---------------------------------------------------
140,049 4,506 (1,185) 143,370 6.27
---------------------------------------------------
$ 600,202 $59,105 $(7,840) $ 651,467 6.17%
===================================================
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
September 30, 2002
---------------------------------------------------------------------------------------------------
(In thousands)
Gross Unrealized
Amortized ---------------- Fair
Cost Gains Losses Value Yield
---------------------------------------------------
AVAILABLE-FOR-SALE SECURITIES
GNMA pass-through certificates ............... $ 3,804 $ 13 $ (43) $ 3,774 5.58%
FNMA pass-through certificates ............... 8,089 645 -- 8,734 7.78
FHLMC pass-through certificates .............. 716,499 49,440 -- 765,939 6.74
FHLMC ........................................ 4,181 96 (27) 4,250 5.38
FNMA ......................................... 3,456 35 (16) 3,475 5.98
Private issues ............................... 3,984 26 -- 4,010 7.31
Forward contracts ............................ -- 36,212 (8,187) 28,025 --
---------------------------------------------------
740,013 86,467 (8,273) 818,207 6.73
---------------------------------------------------
HELD-TO-MATURITY SECURITIES
GNMA pass-through certificates ............... 43 4 -- 47 9.50
FNMA pass-through certificates ............... 2,917 212 -- 3,129 8.18
FHLMC pass-through certificates .............. 149,117 8,732 -- 157,849 7.02
---------------------------------------------------
152,077 8,948 -- 161,025 7.04
---------------------------------------------------
$892,090 $95,415 $(8,273) $ 979,232 6.78%
===================================================
$60.0 million in available-for-sale mortgage-backed securities
were sold in fiscal 2003, resulting in a net gain of $992,000.
There were no sales of mortgage-backed securities during fiscal
2002. $50.3 million of available-for-sale mortgage-backed
securities were sold in 2001, resulting in a gain of $3.2 million.
Substantially all mortgage-backed securities have contractual due
dates that exceed 10 years.
The Company accepts a high level of interest rate risk as a result
of its policy to originate fixed-rate single family home loans
that are longer-term than the short-term characteristics of its
liabilities of customer accounts and borrowed money. The Company
enters into forward contracts to purchase and sell mortgage-backed
securities as part of its interest rate risk management program.
These forward contracts are derivative instruments as defined by
SFAS No. 133, as amended. The forward contracts allow the Company
to hedge the risk of varying mortgage-backed securities prices in
the future as the result of changes in interest rates. The Company
has determined anticipated purchase dates for each forward
commitment to purchase ranging from October 2003 through November
2004. The Company has determined anticipated sale dates for each
forward commitment to sell ranging from December 2003 through
September 2004. The net fair value of these contracts is included
with the available-for-sale securities. The related
mortgage-backed securities are designated as available-for-sale
securities upon exercise of the commitments to purchase.
Cost and fair value of the mortgage-backed securities underlying
the forward contracts were as follows:
September 30, 2003 2002
-------------------------------------------------------------------------------------------------------------------
(In thousands)
Fair Unrealized Fair Unrealized
Cost Value Gain (loss) Cost Value Gain (loss)
---------------------------------------------------------------------------------
Commitments to purchase ........ $305,273 $334,182 $28,909 $247,275 $283,487 $36,212
Commitments to sell ............ 163,766 170,287 (6,521) 223,064 231,251 (8,187)
NOTE D LOANS RECEIVABLE AND SECURITIZED ASSETS SUBJECT TO REPURCHASE
September 30, 2003 2002
----------------------------------------------------------------------------------------
(In thousands)
Conventional real estate
Permanent single-family residential ................. $3,851,720 $4,145,122
Multi-family ........................................ 479,129 441,648
Land ................................................ 217,214 179,936
Construction ........................................ 639,058 574,866
------------------------------
5,187,121 5,341,572
------------------------------
Less
Allowance for probable losses ....................... 25,806 23,912
Loans in process .................................... 307,537 235,733
Deferred loan origination fees ...................... 36,270 33,963
------------------------------
369,613 293,608
------------------------------
$4,817,508 $5,047,964
==============================
The Company originates adjustable and fixed interest rate loans,
which at September 30, 2003 consisted of the following:
Fixed-Rate
(In thousands)
------------------------------------------
Term to Maturity Book Value
------------------------------------------
Within 1 year ................ $ 19,615
1 to 3 years ................. 60,009
3 to 5 years ................. 73,552
5 to 10 years ................ 359,443
10 to 20 years ............... 445,831
Over 20 years ................ 3,376,814
----------
$4,335,264
==========
Adjustable-Rate
(In thousands)
------------------------------------------
Term to Rate Adjustment Book Value
------------------------------------------
Less than 1 year ............. $ 606,672
1 to 3 years ................. 97,430
3 to 5 years ................. 122,196
5 to 10 years ................ 25,559
10 to 20 years ............... --
Over 20 years ................ --
----------
$ 851,857
==========
At September 30, 2003 and 2002, approximately $52,287,000 and
$36,637,000 of fixed-rate loan origination commitments were
outstanding, respectively. Loans serviced for others at September
30, 2003 and 2002 were approximately $35,415,000 and $16,996,000,
respectively.
Permanent single-family residential loans receivable included
adjustable-rate loans of $101,719,000 and $11,448,000 at September
30, 2003 and 2002, 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:
September 30, 2003 Washington Idaho Oregon Utah Arizona Other Total
--------------------------------------------------------------------------------------------------------------------
(In thousands)
Conventional real estate
Permanent
single-family
residential ......... $1,492,999 $ 464,792 $ 624,827 $ 401,448 $ 360,462 $ 507,192 $3,851,720
Multi-family .......... 129,374 33,071 161,633 33,639 99,334 22,078 479,129
Land .................. 114,951 42,694 16,482 20,903 20,181 2,003 217,214
Construction .......... 281,987 89,604 101,895 81,073 70,264 14,235 639,058
----------------------------------------------------------------------------------------
$2,019,311 $ 630,161 $ 904,837 $ 537,063 $ 550,241 $ 545,508 $5,187,121
========================================================================================
At September 30, 2003, the Company's recorded investment in
impaired loans was $9.6 million with allocated reserves of $1.0
million. At September 30, 2002 the Company's recorded investment
in impaired loans was $10.5 million with no related allocated
reserves. The average balance of impaired loans during 2003, 2002
and 2001 was $13.3 million, $12.7 million and $13.1 million and
interest income from impaired loans was $851,000, $922,000 and
$949,000, respectively.
19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E ALLOWANCE FOR LOSSES ON LOANS AND SECURITIZED ASSETS SUBJECT TO
REPURCHASE
Year ended September 30, 2003 2002 2001
--------------------------------------------------------------------------------------------
(In thousands)
Balance at beginning of year ........................... $ 23,912 $ 19,683 $ 20,831
Provision for loan losses .............................. 1,500 7,000 1,850
Charge-offs ............................................ (1,310) (3,401) (3,845)
Recoveries ............................................. 107 630 847
Acquired reserves ...................................... 1,597 -- --
----------------------------------
Balance at end of year ................................. $ 25,806 $ 23,912 $ 19,683
==================================
NOTE F INTEREST RECEIVABLE
September 30, 2003 2002
--------------------------------------------------------------------------------------------
(In thousands)
Loans receivable and securitized assets subject to repurchase ....... $ 24,929 $ 33,067
Allowance for uncollected interest on loans receivable .............. (807) (956)
Mortgage-backed securities .......................................... 3,043 5,158
Investment securities ............................................... 2,324 2,234
---------------------
$ 29,489 $ 39,503
=====================
NOTE G PREMISES AND EQUIPMENT
September 30, 2003 2002
--------------------------------------------------------------------------------------------
(In thousands)
Estimated
Useful Life
-----------
Land ................................................ -- $ 18,982 $ 13,643
Buildings ........................................... 25 - 40 55,509 52,975
Leasehold improvements .............................. 7 - 15 5,409 5,302
Furniture, fixtures and equipment ................... 2 - 10 15,446 15,052
---------------------
95,346 86,972
Less accumulated depreciation ....................................... (34,404) (31,853)
---------------------
$ 60,942 $ 55,119
=====================
The Company has non-cancelable operating leases for branch
offices. Rental expense, including amounts paid under
month-to-month cancelable leases, amounted to $1,862,000,
$1,895,000 and $1,606,000 in 2003, 2002 and 2001, respectively.
Future minimum net rental commitments for all non-cancelable
leases, including maintenance and associated costs, are
immaterial.
NOTE H REAL ESTATE HELD FOR SALE
September 30, 2003 2002
--------------------------------------------------------------------------------------------
(In thousands)
Acquired for development ............................................ $ 4,708 $ 7,072
Acquired in settlement of loans ..................................... 11,496 10,515
---------------------
$ 16,204 $ 17,587
=====================
20
NOTE I CUSTOMER ACCOUNTS
September 30, 2002 2001
------------------------------------------------------------------------------------------
(In thousands)
Checking accounts, .75% and under .............................. $ 190,352 $ 191,542
Passbook and statement accounts, .75% .......................... 234,023 157,759
Insured money market accounts, .50% to 1.00% ................... 1,037,641 972,993
Certificate accounts
Less than 3.00% .............................................. 2,401,924 1,619,867
3.00% to 3.99% ............................................... 257,646 935,687
4.00% to 4.99% ............................................... 258,875 373,230
5.00% to 5.99% ............................................... 120,960 189,712
6.00% to 6.99% ............................................... 18,139 11,460
7.00% and over ............................................... 491 --
------------------------
Total certificates ............................................. 3,058,035 3,129,956
------------------------
Repurchase agreements with customers, .75% to 1.55% ............ 57,547 69,672
------------------------
$4,577,598 $4,521,922
========================
Certificate maturities were as follows:
September 30, 2002 2001
------------------------------------------------------------------------------------------
(In thousands)
Within 1 year .................................................. $2,313,645 $2,590,373
1 to 2 years ................................................... 236,988 156,413
3 to 4 years ................................................... 183,379 62,260
Over 4 years ................................................... 324,023 320,910
------------------------
$3,058,035 $3,129,956
========================
Customer accounts over $100,000 totaled $1,133,000,000 as of
September 30, 2003 and $1,040,000,000 as of September 30, 2002.
Interest expense on customer accounts consisted of the following:
Year ended September 30, 2003 2002 2001
--------------------------------------------------------------------------------------------
(In thousands)
Checking accounts ...................................... $ 1,655 $ 2,310 $ 2,426
Passbook and statement accounts ........................ 2,114 3,201 4,066
Insured money market accounts .......................... 14,947 22,231 24,514
Certificate accounts ................................... 85,931 122,705 160,018
----------------------------------
104,647 150,447 191,024
Repurchase agreements with customers ................... 1,651 2,259 4,138
----------------------------------
106,298 152,706 195,162
Less early withdrawal penalties ........................ (379) (418) (452)
----------------------------------
$105,919 $152,288 $194,710
==================================
Weighted-average interest rate at end of year .......... 1.94% 2.96% 4.31%
Weighted daily average interest rate during the year ... 2.38 3.41 5.28
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J FHLB ADVANCES
Maturity dates of FHLB advances were as follows:
September 30, 2002 2001
------------------------------------------------------------------------------------------
(In thousands)
FHLB advances due
Within 1 year .................................................. $ 250,000 $ --
1 to 3 years ................................................... 300,000 450,000
4 to 5 years ................................................... 400,000 100,000
More than 5 years .............................................. 700,000 1,100,000
------------------------
$1,650,000 $1,650,000
========================
Included in the table above are $1,300,000,000 of FHLB advances
that are callable by the FHLB. If these callable advances were
called at the earliest call dates, the maturities of all FHLB
advances would be as follows:
September 30, 2002 2001
------------------------------------------------------------------------------------------
(In thousands)
FHLB advances due
Within 1 year .................................................. $ 850,000 $ 600,000
1 to 3 years ................................................... 700,000 650,000
4 to 5 years ................................................... 100,000 400,000
More than 5 years .............................................. -- --
------------------------
$1,650,000 $1,650,000
========================
Financial data pertaining to the weighted-average cost and the
amount of FHLB advances were as follows:
September 30, 2003 2002 2001
-------------------------------------------------------------------------------------------------
(In thousands)
Weighted-average interest rate at end of year ............. 5.13% 5.13% 5.12%
Weighted daily average interest rate during the year ...... 5.19 5.28 5.44
Daily average of FHLB advances ............................ $1,650,023 $1,558,384 $1,336,025
Maximum amount of FHLB advances at any month end .......... 1,654,000 1,654,000 2,107,000
Interest expense during the year .......................... 85,564 82,357 72,654
FHLB advances are collateralized as provided for in the Advances,
Pledge and Security Agreement 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
September 30, 2002 2001
------------------------------------------------------------------------------------------
(In thousands)
Securities sold under agreements to repurchase
Callable once in 2007, matures in 2012 ...................... $ 100,000 $ 100,000
========================
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, 2003 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.
22
Financial data pertaining to the weighted-average cost and the
amount of securities sold under agreements to repurchase were as
follows:
September 30, 2003 2002 2001
-------------------------------------------------------------------------------------------------
(In thousands)
Weighted-average interest rate at end of year ............. 3.44% 3.36% --%
Weighted daily average interest rate during the year ...... 3.39 3.36 5.75
Daily average of securities sold under agreements
to repurchase ........................................... $ 100,000 $ 4,110 $ 785,563
Maximum securities sold under agreements to repurchase
at any month end ........................................ 100,000 100,000 1,074,509
Interest expense during the year .......................... 3,388 140 45,149
NOTE L INCOME TAXES
The consolidated statements of financial condition at September
30, 2003 and 2002 include deferred tax liabilities of $70,485,000
and $80,185,000, 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:
September 30, 2002 2001
---------------------------------------------------------------------------------------------
(In thousands)
Deferred tax assets
Real estate valuation reserves .................................. $ -- $ 440
Deferred compensation ........................................... 198 230
Loan loss reserves .............................................. 3,437 --
------------------------
Total deferred tax assets ....................................... 3,635 670
------------------------
Deferred tax liabilities
FHLB stock dividends ............................................ 31,919 30,538
Core deposit intangible ......................................... 1,748 --
Discounts ....................................................... 413 (8)
Loan loss reserves .............................................. -- 742
Valuation adjustment on available-for-sale securities ........... 18,850 30,000
Depreciation .................................................... 3,528 2,085
Loan origination costs .......................................... 13,640 9,214
Securitized asset subject to repurchase valuation adjustment .... 673 2,653
Other, net ...................................................... 3,349 5,631
------------------------
Total deferred tax liabilities .................................. 74,120 80,855
------------------------
Net deferred tax liability ........................................ $ 70,485 $ 80,185
========================
A reconciliation of the statutory federal income tax rate to the
effective income tax rate follows:
Year ended September 30, 2003 2002 2001
---------------------------------------------------------------------------------------------
(In thousands)
Statutory income tax rate ............................... 35% 35% 35%
Dividend received deduction ............................. (1) (1) (1)
Other ................................................... (1) -- --
State income tax ........................................ 2 1 1
----------------------------------
Effective income tax rate ............................... 35% 35% 35%
==================================
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 $25,406,000 in additional federal income taxes, all
of which has been previously provided, 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, 2003 the amount
of those reserves was approximately $8,139,000. The amount of
unrecognized deferred tax liability at September 30, 2003 was
approximately $2,985,000.
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.
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE M PROFIT SHARING RETIREMENT PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN
The Company maintains a Profit Sharing Retirement Plan and
Employee Stock Ownership Plan (Plan) for the benefit of its
employees. Company 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 of 1974.
Employees may contribute up to 7% of their base salaries to the
Plan or a portion of their base salaries on a tax-deferred basis
through the 401(k) provisions of the Plan with a combined maximum
of the lesser of 100% of base salary or $40,000. Under provisions
of the Plan, employees are eligible to participate on the date of
hire and become fully vested in the Company's contributions
following seven years of service. In 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 employees to direct a portion of
their vested account balance toward the purchase of Company stock.
Company contributions to the Plan amounted to $2,001,000,
$2,039,000 and $1,781,000 for the years ended September 30, 2003,
2002 and 2001, respectively.
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 2,246,826 shares, 3,702,563 shares and 3,388,000 shares
of common stock, as adjusted for stock splits and stock dividends,
to be reserved pursuant to the 1987 Stock Option and Stock
Appreciation Rights Plan (the 1987 Plan), the 1994 Stock Option
and Stock Appreciation Rights Plan (the 1994 Plan) and the 2001
Long-Term Incentive Plan (the 2001 Plan), respectively. The three
plans are substantially similar. Of the 9,337,389 total shares
authorized by stockholders under the three plans, 4,773,062 shares
remain available for issuance. All equity compensation plans have
been approved by stockholders.
Options granted under each plan vest at varying percentages
commencing as early as one year after the date of grant with
expiration dates 10 years after the date of grant.
Weighted-Average
Fair Value of Option
Average Price(1) Number(1) Shares Granted
------------------------------------------------------------------------------------------------------
Outstanding, October 1, 2000 .............. $ 13.34 2,663,546
Granted in 2001 ........................... 15.34 101,217 $ 4.05
Exercised in 2001 ......................... 10.56 (578,673)
Forfeited in 2001 ......................... 13.85 (138,349)
------------------------------
Outstanding, September 30, 2001 ........... 14.18 2,047,741
Granted in 2002 ........................... 18.31 842,655 3.42
Exercised in 2002 ......................... 11.78 (317,935)
Forfeited in 2002 ......................... 16.02 (165,210)
------------------------------
Outstanding, September 30, 2002 ........... 15.82 2,407,251
Granted in 2003 ........................... 20.33 82,170 3.54
Exercised in 2003 ......................... 13.10 (391,176)
Forfeited in 2003 ......................... 16.63 (158,944)
------------------------------
Outstanding, September 30, 2003 ........... $ 16.49 1,939,301
==============================
(1)Average price and number of stock options granted, exercised
and forfeited have been adjusted for the 10% stock dividends.
Financial data pertaining to outstanding stock options were as
follows:
September 30, 2003
----------------------------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------------------------
$ 8.91 - 14.18 711,901 5.5 YEARS $ 13.71 236,225 $ 12.82
15.03 - 16.62 156,642 5.7 15.66 36,232 15.87
18.31 - 21.52 1,070,758 7.1 18.46 177,971 18.32
----------------------------------------------------------------------------------------------------------
1,939,301 6.4 YEARS $ 16.49 450,428 $ 15.24
==========================================================================================================
24
NOTE O STOCKHOLDERS' EQUITY
In the second quarter of fiscal 2003 and 2002, 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, 2003 and 2002, 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.
Categorized as
Well Capitalized Under
Capital Prompt Corrective
Actual Adequacy Guidelines Action Provisions
---------------------- ---------------------- ----------------------
Capital Ratio Capital Ratio Capital Ratio
----------------------------------------------------------------------------------------------------------------------
September 30, 2003 (Dollars in thousands)
Total capital to risk-weighted assets $ 974,775 24.56% $ 317,465 8.00% $ 396,831 10.00%
Tier I capital to risk-weighted assets 956,470 24.10 NA NA 238,099 6.00
Core capital to adjusted tangible assets 956,470 12.91 NA NA 370,373 5.00
Core capital to total assets 956,470 12.91 222,224 3.00 NA NA
Tangible capital to tangible assets 956,470 12.91 111,112 1.50 NA NA
September 30, 2002
Total capital to risk-weighted assets $ 875,847 22.62% $ 309,807 8.00% $ 387,259 10.00%
Tier I capital to risk-weighted assets 860,179 22.21 NA NA 232,355 6.00
Core capital to adjusted tangible assets 860,179 11.85 NA NA 363,095 5.00
Core capital to total assets 860,179 11.85 217,857 3.00 NA NA
Tangible capital to tangible assets 860,179 11.85 108,928 1.50 NA NA
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
August 2003.
The Company has an ongoing stock repurchase program. During fiscal
2003, the Company repurchased 510,070 shares at a weighted-average
price of $19.67. In fiscal 2002, the Company repurchased 535,150
shares at a weighted-average price of $19.11. As of September 30,
2003, management had authorization from the Board of Directors to
repurchase up to 2.8 million additional shares.
Information used to calculate earnings per share follows:
Year ended September 30, 2003 2002 2001
------------------------------------------------------------------------------------------------------
(Dollars in thousands except per share data)
Net income .................................................. $ 145,544 $ 143,954 $ 113,614
Weighted-average shares
Basic weighted-average number of
common shares outstanding ............................... 69,661,074 69,855,216 69,714,999
Dilutive effect of outstanding common stock equivalents ... 571,621 667,944 746,518
---------------------------------------
Diluted weighted-average number of
common shares outstanding ............................... 70,232,695 70,523,160 70,461,517
=======================================
Net income per share
Basic ..................................................... $ 2.09 $ 2.06 $ 1.63
Diluted ................................................... 2.07 2.04 1.61
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
non-financial 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.
September 30, 2003 2002
---------------------------------------------------------------------------------------------------------
(In thousands)
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------------------------------------------------------
Financial assets
Cash and cash equivalents ..................... $1,437,208 $1,437,208 $ 975,153 $ 975,153
Available-for-sale securities ................. 804,186 804,186 918,776 918,776
Held-to-maturity securities ................... 154,178 159,086 168,925 179,590
Loans receivable and securitized assets ....... 4,817,508 4,899,274 5,047,964 5,743,480
FHLB stock .................................... 143,851 143,851 132,320 132,320
Financial liabilities
Customer accounts ............................. 4,577,598 4,590,160 4,521,922 4,538,726
FHLB advances and other borrowings ............ 1,750,000 1,825,532 1,750,000 1,797,468
The following methods and assumptions were used to estimate the
fair value of financial instruments:
CASH AND CASH EQUIVALENTS - The carrying amount of these items is
a reasonable estimate of their fair value.
INVESTMENT SECURITIES - The fair value is based on quoted market
prices or dealer estimates.
LOANS RECEIVABLE AND SECURITIZED ASSETS SUBJECT TO REPURCHASE -
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.
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.
ACQUISITION AND INTANGIBLE ASSETS
NOTE Q On August 31, 2003, the Company acquired United Savings and Loan
Bank. The acquisition was accounted for as a purchase transaction
with the total cash consideration funded through internal sources.
The purchase price was $65,604,000, of which $32,322,000 was paid
in cash and $33,282,000 was paid in stock. In addition, the
Company paid $1,150,000 in three non-compete agreements, of which
$575,000 was allocated to both goodwill and the non-compete
agreement intangible. The purchase price has been allocated to the
underlying assets and liabilities based on estimated fair values
at the date of acquisition. Results of operations are included
from the date of acquisition. The Company acquired assets with an
estimated fair value of $343,626,000 and assumed liabilities with
an estimated fair value of $276,872,000. The acquisition produced
goodwill of $19,263,000, a core deposit intangible of $4,921,000
and a non-compete agreement intangible of $575,000.
26
The balance of the Company's intangible assets was as follows:
Core Deposit Non-Compete
Goodwill Intangible Agreement Total
----------------------------------------------------------
(In thousands)
Balance at September 30, 2001 ...... $ 35,703 $ -- $ -- $ 35,703
Accumulated amortization ........... -- -- -- --
----------------------------------------------------------
Balance at September 30, 2002 ...... 35,703 -- -- 35,703
United acquisition ................. 19,263 4,921 575 24,759
Accumulated amortization ........... -- (116) (10) (126)
----------------------------------------------------------
Balance at September 30, 2003 ...... $ 54,966 $ 4,805 $ 565 $ 60,336
==========================================================
The table below presents the estimated intangible asset
amortization expense for the next five years:
Year ended September 30, Amortization expense
------------------------------------------------------------------
(In thousands)
2004 ....................................... $1,396
2005 ....................................... 1,198
2006 ....................................... 1,000
2007 ....................................... 801
2008 ....................................... 593
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
September 30, 2003 2002
-----------------------------------------------------------------------------------------------
(In thousands)
ASSETS
Cash ........................................................ $ 4,527 $ 2,268
Investment in subsidiary .................................... 1,053,451 959,250
Dividend receivable ......................................... 12,000 14,000
--------------------------------
Total assets .............................................. $ 1,069,978 $ 975,518
================================
LIABILITIES
Dividend payable and other liabilities ...................... $ 14,382 $ 14,800
--------------------------------
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value: 100,000,000 shares authorized;
85,553,789 and 83,833,244 shares issued;
71,173,487 and 69,894,902 shares outstanding .............. $ 85,554 $ 76,212
Paid-in capital ............................................. 1,085,650 968,858
Accumulated other comprehensive income, net of tax .......... 34,624 56,000
Treasury stock, at cost; 14,380,302 and 13,938,342 shares ... (207,337) (198,279)
Retained earnings ........................................... 57,105 57,927
--------------------------------
Total stockholders' equity ................................ 1,055,596 960,718
--------------------------------
Total liabilities and stockholders' equity ................ $ 1,069,978 $ 975,518
================================
STATEMENTS OF OPERATIONS
Year ended September 30, 2003 2002 2001
-----------------------------------------------------------------------------------------------------------
(In thousands)
INCOME
Dividends from subsidiary ........................................... $ 63,500 $ 64,000 $ 45,000
EXPENSE
Miscellaneous ....................................................... 389 380 354
----------------------------------
Net income before equity in undistributed net income of subsidiary .. 63,111 63,620 44,646
Equity in undistributed net income of subsidiary ...................... 82,296 80,200 68,843
----------------------------------
Income before income taxes ............................................ 145,407 143,820 113,489
Income tax benefit .................................................... 137 134 125
----------------------------------
Net income ............................................................ $ 145,544 $ 143,954 $ 113,614
==================================
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CASH FLOWS
Year ended September 30, 2003 2002 2001
-------------------------------------------------------------------------------------------------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ........................................................ $ 145,544 $ 143,954 $ 113,614
Adjustments to reconcile net income to net
cash provided by operating activities
Equity in undistributed net income of subsidiary ................ (82,296) (80,200) (68,843)
Decrease (increase) in dividend receivable ...................... 2,000 (1,875) 1,875
Increase (decrease) in dividend payable ......................... (417) 920 758
----------------------------------
Net cash provided by operating activities ....................... 64,831 62,799 47,404
Cash Flows From Financing Activities
Issuance of common stock through stock option plan ................ 5,944 3,744 6,224
Proceeds from Employee Stock Ownership Plan ....................... 1,522 1,618 1,108
Treasury stock purchased .......................................... (10,034) (10,224) --
Dividends ......................................................... (60,004) (57,383) (54,102)
----------------------------------
Net cash used by financing activities ........................... (62,572) (62,245) (46,770)
----------------------------------
Increase in cash ................................................ 2,259 554 634
Cash at beginning of year ....................................... 2,268 1,714 1,080
----------------------------------
Cash at end of year ............................................. $ 4,527 $ 2,268 $ 1,714
==================================
NOTE S SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited interim results of
operations by quarter:
FIRST SECOND THIRD FOURTH
Year ended September 30, 2003 QUARTER QUARTER QUARTER QUARTER
---------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Interest income .............................. $ 122,068 $ 114,326 $ 109,961 $ 103,830
Interest expense ............................. 53,703 49,565 46,917 44,699
---------------------------------------------
Net interest income .......................... 68,365 64,761 63,044 59,131
Provision for loan losses .................... 1,250 150 100 --
Other operating income ....................... 1,866 5,491 3,482 3,984
Other operating expense ...................... 11,653 11,868 10,410 10,128
---------------------------------------------
Income before income taxes ................... 57,328 58,234 56,016 52,987
Income taxes ................................. 20,210 20,530 19,605 18,676
---------------------------------------------
Net income ................................... $ 37,118 $ 37,704 $ 36,411 $ 34,311
=============================================
Basic earnings per share ..................... $ .54 $ .54 $ .52 $ .49
=============================================
Diluted earnings per share ................... $ .52 $ .54 $ .52 $ .49
=============================================
Cash dividends per share ..................... $ .21 $ .21 $ .22 $ .22
=============================================
Return of average assets ..................... 2.03% 2.08% 2.02% 1.89%
=============================================
FIRST SECOND THIRD FOURTH
Year ended September 30, 2002 QUARTER QUARTER QUARTER QUARTER
---------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Interest income .............................. $ 131,325 $ 126,485 $ 123,543 $ 123,607
Interest expense ............................. 65,357 58,274 55,875 55,435
---------------------------------------------
Net interest income .......................... 65,968 68,211 67,668 68,172
Provision for loan losses .................... 2,000 2,000 1,500 1,500
Other operating income ....................... 3,002 1,553 1,803 1,848
Other operating expense ...................... 12,318 12,536 12,553 11,464
---------------------------------------------
Income before income taxes ................... 54,652 55,228 55,418 57,056
Income taxes ................................. 19,267 19,469 19,535 20,129
---------------------------------------------
Net income ................................... $ 35,385 $ 35,759 $ 35,883 $ 36,927
=============================================
Basic earnings per share ..................... $ .51 $ .51 $ .51 $ .53
=============================================
Diluted earnings per share ................... $ .50 $ .51 $ .51 $ .52
=============================================
Cash dividends per share ..................... $ .20 $ .20 $ .21 $ .21
=============================================
Return of average assets ..................... 2.04% 2.05% 2.04% 2.07%
=============================================
28
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
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, 2003 and 2002, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended September 30, 2003. 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, 2003 and 2002, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2003, in conformity with accounting principles generally accepted
in the United States of America.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Seattle, Washington
November 6, 2003
GENERAL CORPORATE AND STOCKHOLDERS' INFORMATION
CORPORATE 425 Pike Street
HEADQUARTERS Seattle, Washington 98101
(206) 624-7930
INDEPENDENT Deloitte & Touche LLP
AUDITORS Seattle, Washington
TRANSFER Stockholder inquiries regarding transfer requirements, cash
AGENT, or stock dividends, lost certificates, consolidating records,
REGISTRAR AND correcting a name or changing an address should be directed
DIVIDEND to the transfer agent:
DISBURSING Mellon Investor Services L.L.C.
AGENT P.O. Box 3315
South Hackensack, NJ 07606, or
85 Challenger Road
Ridgefield Park, NJ 07660
Telephone: 1-800-522-6645
www.melloninvestor.com
ANNUAL MEETING The annual meeting of stockholders will be held on January
21, 2004, at 2 p.m. at the Sheraton Hotel, 1400 Sixth Avenue,
Seattle, Washington
FORM 10-K This report and all SEC filings are available on the
Company's web site at: www.washingtonfederal.com
STOCK INFORMATION Washington Federal, Inc. is traded on the NASDAQ Stock
Market. The common stock symbol is WFSL. At September 30,
2003, there were approximately 2,584 stockholders of record.
STOCK PRICES
----------------
QUARTER ENDED HIGH LOW DIVIDENDS
-------------------------------------------------------------
DECEMBER 31, 2001 $21.41 $18.18 $0.20
MARCH 31, 2002 23.76 21.39 0.20
JUNE 30, 2002 24.92 21.85 0.21
SEPTEMBER 30, 2002 23.87 19.32 0.21
DECEMBER 31, 2002 23.03 18.77 0.21
MARCH 31, 2003 23.51 20.91 0.21
JUNE 30, 2003 23.92 21.06 0.22
SEPTEMBER 30, 2003 26.41 23.19 0.22
ALL PRICES SHOWN HAVE BEEN ADJUSTED FOR STOCK SPLITS.
LARGEST MARKET MAKERS:
McAdams Wright Ragen, Inc.
Cincinnati Stock Exchange
Goldman, Sachs & Co.
Archipelago Exchange
Knight Equity Markets, L.P.
Archipelago, L.L.C.
Merrill Lynch, Pierce, Fenner & Smith, Inc.
Citigroup Global Markets, Inc.
Schwab Capital Markets
Alternate Display Facility
Morgan Stanley & Co., Inc.
Prudential Equity Group, Inc.
Deutsche Banc Alex Brown
Investment Technology Group
Instinet Corporation
29
DIRECTORS, OFFICERS AND OFFICES
CORPORATE EXECUTIVE MANAGEMENT DEPARTMENT SUBSIDIARIES
HEADQUARTERS COMMITTEE MANAGERS
FIRST INSURANCE
425 Pike Street BRENT J. BEARDALL APPRAISAL AGENCY, INC.
Seattle, WA 98101 Senior Vice President HEATHER ST. CLAIR 317 S. 2nd Street
(206) 624-7930 and Chief Financial Mount Vernon, WA 98273
Officer BRANCH LOAN 1-800-562-2555
BOARD OF DIRECTORS UNDERWRITING (360) 336-9630
LINDA S. BROWER
GUY C. PINKERTON Executive Vice President MICHAEL BUSH DUANE HENSON
Chairman Vice President WASHINGTON SERVICES, INC.
EDWIN C. HEDLUND 6125 South Morgan Road
ROY M. WHITEHEAD Executive Vice President CREDIT Freeland, WA 98249
Vice Chairman, President and Secretary ADMINISTRATION-
and Chief Executive CONSTRUCTION AND
Officer JACK B. JACOBSON LAND
Executive Vice President
DEREK L. CHINN and Chief Lending JAMES E. CADY
Former President and Officer Senior Vice President
Chief Executive Officer,
United Savings and Loan ROY M. WHITEHEAD DALE SULLIVAN
Bank Vice Chairman, President Vice President
and Chief Executive Officer
JOHN F. CLEARMAN CORPORATE REAL ESTATE
Former Chief Financial AND TAXES
Officer, Milliman KEITH D. TAYLOR
USA, Inc. Senior Vice President
and Treasurer
H. DENNIS HALVORSON
Former Chief Executive DATA PROCESSING
Officer, United Bank TERRY O. PERMENTER
Senior Vice President
KERMIT O. HANSON
Dean Emeritus DEPOSIT OPERATIONS
University of Washington BEN A. WHITMARSH
Graduate School of Senior Vice President
Business Administration
INTERNAL AUDIT
W. ALDEN HARRIS BARBARA A. MURPHY
Former Executive Vice President
Vice President
LEGAL/SPECIAL CREDITS
ANNA C. JOHNSON PAUL TYLER
Senior Partner Vice President and
Scan East West Travel Counsel
THOMAS F. KENNEY LOAN OPERATIONS
Vice President Finance LEANN BURKE
Haggen, Inc. Officer
CHARLES R. RICHMOND LOAN SERVICING
Former Executive LARRY PLUMB
Vice President Senior Vice President
DIRECTORS EMERITI MANUALS/TRAINING
LINDA NICHOLL
E.W. MERSEREAU, JR. Assistant Vice President
RICHARD C. REED
MARKETING AND
INVESTOR RELATIONS
CATHY COOPER
Vice President
MULTI-FAMILY LOANS
J. TIMOTHY GRANT
Senior Vice President
PERMANENT LOAN
PRODUCTION
JOHN WUNDERLICH
Vice President
PERMANENT LOAN
UNDERWRITING AND
WHOLESALE LENDING
COLLEEN WELLS
Vice President
DIVISION/REGIONS
SOUTH SOUND WASHINGTON SOUTHERN OREGON
16 OFFICE LOCATIONS 15 OFFICE LOCATIONS
DIVISION MANAGER DIVISION MANAGER
RONDA TOMLINSON PEGGY HOBIN
Vice President Senior Vice President
9919 Bridgeport Way S.W. 300 Ellsworth St. SW
Lakewood, WA 98499 Albany, OR 97321
MIDSOUND WASHINGTON NORTHERN OREGON
14 OFFICE LOCATIONS 10 OFFICE LOCATIONS
DIVISION MANAGER INTERIM DIVISION MANAGER
E. CRAIG WILSON DALE SULLIVAN
Vice President Vice President
5809 196th S.W. 14990 S.W. Bangy Road
Lynnwood, WA 98036 Lake Oswego, OR 97035
CENTRAL SEATTLE
4 OFFICE LOCATIONS UTAH
REGIONAL MANAGER 10 OFFICE LOCATIONS
ROBERT ZIRK DIVISION MANAGER
Vice President RICHARD FISHER
601 S. Jackson Senior Vice President
Seattle, WA 98104 505 East 200 South
Salt Lake City, UT 84102
NORTHERN WASHINGTON
10 OFFICE LOCATIONS PHOENIX, ARIZONA
DIVISION MANAGER 12 OFFICE LOCATIONS
DOUGLAS A. ROWELL DIVISION MANAGER
Senior Vice President WENDY YATES
317 S. 2nd Street Vice President
Mount Vernon, WA 98273 2196 E. Camelback Road, Suite 100
Phoenix, AZ 85016
WESTERN IDAHO
12 OFFICE LOCATIONS TUCSON, ARIZONA
DIVISION MANAGER 8 OFFICE LOCATIONS
ROBERT P. LINK DIVISION MANAGER
Senior Vice President GEORGIA VELARDE
1001 W. Idaho St. Vice President
Boise, ID 83701 5151 E. Broadway Blvd.,
Suite 105
Tucson, AZ 85711
EASTERN IDAHO
4 OFFICE LOCATIONS NEVADA
DIVISION MANAGER 2 OFFICE LOCATIONS
LARRY WADSWORTH DIVISION MANAGER
Senior Vice President PAMELA K. CALLAHAN
500 North Capital Vice President
Idaho Falls, ID 83402 9340 Sun City Blvd. #103
Las Vegas, NV 89134
TEXAS
1 OFFICE LOCATION
DIVISION MANAGER
VAUGHN PEARSON
Senior Vice President
7001 Preston Road, Suite 110
Dallas, TX 75205
COLORADO
1 LOAN PRODUCTION
OFFICE
SCOTT BRKOVICH
Officer
384 Inverness Drive
South, Suite 105
Englewood, CO 80112
A complete listing of our branch locations can be found at
www.washingtonfederal.com
30