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EXHIBIT 13
TABLE OF CONTENTS
Financial Highlights 3
To Our Stockholders 4
Management's Discussion 6
Selected Financial Data 12
Financial Statements 13
Notes to Financial Statements 17
Report of Independent
Registered Public Accounting Firm 34
General Information 35
Directors, Officers and Offices 36
A SHORT HISTORY
Washington Federal, Inc. (Company or Washington Federal) is a savings and loan
holding company headquartered in Seattle, Washington. Its principal subsidiary
is Washington Federal Savings, which operates 120 offices in eight western
states.
The Company had its origin on April 24, 1917 as Ballard Savings and Loan
Association. In 1935, the state-chartered Company 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 Company, 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 Company 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 Company. 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.
1
In 1991, the Company 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 Company 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 Company purchased West Coast Mutual
Savings Bank with its one branch in Centralia, Washington, and opened six
additional branches. In 1996, the Company 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 Company expanded into Las Vegas, opening its first branch in Nevada
along with two branches in Arizona. In 2001, the Company 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 Company 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. In 2004, the
Company consolidated two branches in Mount Vernon, Washington into one, and
opened branches in Plano, Texas and West Bend, Oregon.
The Company 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.
2
FINANCIAL HIGHLIGHTS
September 30, 2004 2003 % Change
(In thousands, except per share data)
Assets $ 7,169,205 $ 7,535,975 -5%
Cash and cash equivalents 508,361 1,437,208 -65
Investment securities 414,683 310,218 +34
Loans receivable and securitized
assets subject to repurchase, net 5,093,443 4,817,508 +6
Mortgage-backed securities 641,215 625,758 +2
Customer accounts 4,610,358 4,577,598 +1
FHLB advances
and other borrowings 1,300,000 1,750,000 -26
Stockholders' equity 1,120,188 1,055,596 +6
Net income 131,868 144,999 -9
Diluted earnings per share 1.66 1.88 -12
Dividends per share 0.82 0.78 +5
Stockholders' equity per share 14.24 13.48 +6
Shares outstanding 78,680 78,291 --
Return on average stockholders' equity 12.12% 14.61% --
Return on average assets 1.78 1.98 --
Efficiency ratio 18.57 16.87 --
3
TO OUR STOCKHOLDERS
Dear Stockholder:
It is a privilege to report that your company made solid financial
progress during the year just completed. Net income amounted to $131,868,000 and
although this represented a decline of 9% from $144,999,000 reported in the
prior year, it was still our third best year since going public in 1982. As
always, in hindsight there are a few things that we would have done differently,
but generally we are satisfied with the results achieved last year. Operating
performance again compared favorably with others in the industry and your
company's balance sheet grew stronger than ever. Continued confidence in our
future prospects enabled your Board of Directors to increase the annual cash
dividend from $.80 to $.84 per share, a 5% increase. This is the 39th time in
our 22 years as a public company that a cash dividend increase has been
delivered to stockholders, making Washington Federal one of only 1.4% of listed
U.S. companies that have increased its cash dividend in each of the past 20
years.
During fiscal 2004, management chose not to stretch for earnings because
we viewed the attendant credit and interest rate risks to be unacceptably high.
Washington Federal is primarily a fixed rate mortgage lender and with rates
hovering near a 40-year low point, it seemed prudent again this year to be
patient with our investments. In granting credit, we also believe that we took a
conservative approach. Time will tell if we succeeded in that regard; however,
all asset quality indicators currently reflect a healthy loan portfolio. For
example, delinquent loans declined from .68% last year to .40% of total loans at
fiscal year end, the lowest in nine years. Non-performing assets also fell by
46% to only $14.9 million, while actual loan losses amounted to only $435,000.
We continue to maintain significant reserves against loan losses inherent in the
portfolio.
The company's capital position improved again during the past year. Total
stockholders' equity increased by $65 million to $1.12 billion, or 15.62% of
total assets. Ours is among the highest ratios in the industry and represents
the proverbial double-edged sword. A strong capital position offers the best
protection against losses due to unforeseen changes in interest rates or the
housing market. Excess capital also provides management with the flexibility to
take advantage of various business opportunities that may arise, such as asset
purchases, acquisitions, and stock buybacks. A strong capital position is, in
fact, the most important ingredient of our recipe for conservative financial
management. On the other hand, absent growth of the business, at some point the
return we deliver on investment will cease to properly compensate for equity
risk and we should return excess capital to stockholders where it can be used
more efficiently. Our biggest challenge in the near-term may be to profitably
grow the business at the same rate, or a slightly faster rate, than growth of
our capital base.
Other balance sheet actions taken by management last year create reasons
for optimism about earnings in the new fiscal year. For example, the mix of
earning assets has improved. Loans outstanding increased by $276 million, due to
record originations of $2.1 billion and slower prepayment speeds. Investments
also increased by $120 million as management reduced cash by $728 million during
the year, while still maintaining a higher liquidity cushion than normal as a
hedge against rising rates. It's also important to point out that management
chose to repay $450 million in high cost debt obligations during the year. The
reduction of debt resulted in a one-time charge of $5.2 million in fiscal 2004,
but will result in reduced interest expense in the future. On a combined basis
these actions helped the company to improve net interest spread, the primary
driver of earnings in our company, to 3.00% at year-end, a material improvement
from 2.47% at the same time one year ago.
Expense control continued to be a top priority. The efficiency ratio, a
measure expressing the number of pennies spent to produce one dollar of net
revenue, was 18.57% last year - still the best in the industry. Thrift has
always been one of the most important values at Washington Federal and it would
be difficult to overstate the importance of "pinching pennies" to the success we
have experienced over the years.
We continued our de novo branch expansion, albeit at a slower pace than
last year, with two new branches. The first, in Plano, Texas serves as our Texas
Division headquarters. We also opened our second office, known as the West Bend
Branch, in the fast-growing Bend, Oregon market. At this time, we are completing
plans for five new branches: three in Nevada, one in southern Oregon and another
in Texas. During the past year, we also added wholesale loan representatives
4
in most of the major markets and we expect that they will add significant volume
from that important channel in the upcoming year.
As always, I wish to conclude by expressing appreciation to all who
continued their support of Washington Federal during the year. Special thanks go
to our remarkable employees, our valued customers, and our steadfast Board of
Directors. Finally, I wish to thank you as a stockholder, and remind you to send
your friends, neighbors and relatives to Washington Federal for their home loans
and savings needs. You honor us with your confidence and we will work every day
to earn your continued trust.
I hope to see you at the Annual Stockholders' Meeting on January 19, 2005,
at 2:00 p.m. at the Westin Hotel in downtown Seattle.
Sincerely,
/s/ROY M. WHITEHEAD
- ----------------------------------
Roy M. Whitehead
Vice Chairman, President and Chief Executive Officer
5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Washington Federal, Inc. (Company or Washington Federal) is a savings and loan
holding company. The Company's primary operating subsidiary is Washington
Federal Savings.
CRITICAL ACCOUNTING POLICIES
Preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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 described below.
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 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.
INTEREST RATE RISK
The Company accepts a high level of interest rate volatility as a result of its
policy to originate fixed-rate single family home loans that are longer-term
than the short-term characteristics of its liabilities of customer accounts and
borrowed money. The following table shows the estimated repricing periods for
earning assets and paying liabilities.
6
Repricing Period
Within One Year After 1 year - Thereafter Total
before 4 Years
(In thousands)
As of 9/30/04
Earning Assets * $ 2,551,680 $ 1,981,453 $ 2,461,843 $ 6,994,976
Paying Liabilities (4,312,783) (1,224,896) (376,061) (5,913,740)
------------ ------------ ------------
Excess (Liabilities) Assets $ (1,761,103) $ 756,557 $ 2,085,782
Excess as % of Total Assets -24.56%
Policy limit for one year excess -60.00%
* Asset repricing period includes estimated prepayments based on historical
activity
At September 30, 2004, the Company had approximately $1,761,103,000 more
liabilities subject to repricing in the next year than assets, which amounted to
a negative maturity gap of 25% of total assets, compared to a negative maturity
gap of 16% in the prior year. The increase in the one-year maturity gap is due
to the reduction of short-term assets due to the increase in loans and
investments and the decrease in borrowings. By having an excess of liabilities
repricing within one year over assets, the Company is subject to decreasing net
interest income should rates rise. However, if the size and or mix of the
balance sheet changes, rising rates may not cause a decrease net interest
income. The Company's interest rate risk approach has never resulted in the
recording of a monthly operating loss.
The Company's net interest spread increased from 2.47% at September 30, 2003 to
3.00% at September 30, 2004. Net interest spread represents the difference
between the contractual rates of earning assets less the contractual rates of
paying liabilities as of a specific date. The spread increased primarily due to
the repayment of $450,000,000 in borrowings, combined with a shift in the asset
mix toward long-term assets due primarily to the $275,935,000 growth in net
loans.
During 2004 the Company chose to redeploy a portion of its short-term
investments (a net decrease of $729 million), increase the net amount of loans
and investments (a net increase of $396 million), and reduce the amount of
borrowings (a decrease of $450 million). As of September 30, 2004, the Company
had $708 million in cash, cash equivalents and repurchase agreements, which can
be invested long-term in the future to generate additional revenues.
ASSET QUALITY
The Company maintains an allowance to absorb losses inherent in the loan
portfolio. The allowance is based on ongoing, quarterly assessments of the
probable and estimable losses inherent in the loan portfolio. In analyzing the
existing loan portfolio, the Company applies specific loss percentage factors to
the different loan types. The loss percentages are based on 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 $14,945,000, or .21% of total assets at September 30,
2004 compared to $27,434,000, or .36% of total assets at September 30, 2003.
Total delinquencies over 30 days were $21,419,000, or .30% of total assets at
September 30, 2004 compared to $34,736,000, or .46% of total assets at September
30, 2003. The aforementioned asset quality indicators, when compared to others
in the industry, demonstrate the continued excellent quality of the loan
portfolio.
7
LIQUIDITY AND CAPITAL RESOURCES
The Company's net worth at September 30, 2004 was $1,120,188,000, or 15.6% of
total assets. This is an increase of $64,592,000 from September 30, 2003 when
net worth was $1,055,596,000, or 14.0% of total assets. The Company's net worth
increased due in part to net income of $131,868,000, proceeds received from the
exercise of common stock options of $3,517,000 and purchases by the Employee
Stock Ownership Plan of $4,695,000. Net worth was reduced by $64,696,000 as a
result of cash dividends paid, a decrease in accumulated other comprehensive
income of $9,783,000 and $1,939,000 of stock repurchases. The ratio of net worth
to total assets remains at a high level despite the distribution of 49.1% 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 $32,760,000, or 0.7% from one year ago. Management's
strategy during this phase of the interest rate cycle (low rate environment for
assets) has been to keep deposit growth to a minimum until excess cash is
deployed into higher yielding assets.
The Company's cash and cash equivalents amounted to $508,361,000 at September
30, 2004, a significant decrease from $1,437,208,000 one year ago. The decrease
resulted primarily from the repayment of $455,191,000 in debt, the purchase of a
$200,000,000 repurchase agreement maturing in March 2005 and an increase of
$275,935,000 in net loans outstanding. See "Interest Rate Risk" above.
CHANGES IN FINANCIAL POSITION
Available-for-sale and held-to-maturity securities. The Company purchased
$723,890,000 of securities during fiscal 2004, $666,990,000 of which have been
categorized as available-for-sale and $56,900,000 of which have been classified
as held-to-maturity.
The Company had $303,171,000 in sales of available-for-sale securities,
resulting in a net realized loss of $890,000. As of September 30, 2004, the
Company had net unrealized gains in its available-for-sale portfolio of
$22,012,000.
Loans receivable and securitized assets subject to repurchase. Loans receivable
and securitized assets subject to repurchase increased 5.7% to $5,093,443,000 at
September 30, 2004 from $4,817,508,000 one year earlier. The increase resulted
primarily from record loan production combined with reduced loan prepayments.
The allowance for losses on loans and securitized assets subject to repurchase
decreased $666,000 during the year primarily due to a $231,000 reversal of the
reserve combined with net charge-offs due to a reduction in the Company's
nonperforming loan balances as well as an improvement in the number of
delinquent loans and net growth in the loan portfolio. The percentage of loans
outside of Washington, Idaho, Oregon, Utah and Arizona decreased to 7.3% at
September 30, 2004 from 10.5% one year earlier. Construction and land loans
increased to 20.4% of the portfolio at September 30, 2004 from 16.5% at
September 30, 2003. The amount of reserves allocated to impaired loans decreased
to $700,000 at September 30, 2004 from an allocation of $1,000,000 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, 2004 was $8,630,000, a
decrease from $16,204,000 reported one year ago, due to strong demand for
housing in the Company's primary markets.
FHLB stock. FHLB stock amounted to $137,274,000 at September 30, 2004 compared
with $143,851,000 one year ago. The Company chose to redeem $6,577,000 in FHLB
stock. No gain or loss was recognized on the sale.
Intangible assets. On August 31, 2003, the Company acquired United Savings and
Loan Bank. 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. The
unamortized balance of the core deposit intangible and the non-compete agreement
intangible were $3,523,000 and $450,000, respectively, at September 30, 2004.
Other assets. Other assets decreased $20,682,000 to $13,779,000 at September 30,
2004 due to a decrease of $12,129,000 in the amount and fair value of the
Company's forward commitments as well as a change in accounting related to the
Company's investment in a low income housing partnership. As of September 30,
2003, this $10 million investment was recorded at the full amount of the
commitment. However, as of January 1, 2004, the accounting rules changed due to
the
8
issuance of Financial Interpretation (FIN) No. 46(R), which required
investments in variable interest entities to be consolidated. As a result this
investment's carrying value as of September 30, 2004 was reduced to $3,096,000.
Customer accounts. Customer accounts at September 30, 2004 totaled
$4,610,358,000 compared with $4,577,598,000 at September 30, 2003, a 0.7%
increase. See "Liquidity and Capital Resources" above.
FHLB advances and other borrowings. Total borrowings decreased $450,000,000, or
25.7%, to $1,300,000,000 at September 30, 2004 as the Company repaid higher
interest rate borrowings. See "Interest Rate Risk" above.
Contractual obligations. The following table presents, as of September 30, 2004,
the Company's significant fixed and determinable contractual obligations, within
the categories described below, by payment date or contractual maturity. These
contractual obligations, except for the operating lease and purchase obligations
are included in the Consolidated Statements of Financial Condition. The payment
amounts represent those amounts contractually due.
Contractual Obligations Less than 1 to 5 Over 5
Total 1 Year Years Years
----- ------ ----- -----
(In thousands)
Debt obligations $ 1,300,000 $ 500,000 $ 400,000 $ 400,000
Operating lease obligations 7,071 1,786 3,290 1,995
Purchase commitments (1) 315,000 315,000 - -
------------ ------------ ------------ ------------
$ 1,622,071 $ 816,786 $ 403,290 $ 401,995
(1) Represents commitments to purchase mortgage-backed securities. See a
description in Note C.
RESULTS OF OPERATIONS
GENERAL
Fiscal 2004 net income decreased 9% from fiscal 2003. See Note S, "Selected
Quarterly Financial Data (Unaudited)," which highlights the quarter-by-quarter
results for the years ended September 30, 2004 and 2003.
9
PERIOD END SPREAD - AS OF THE DATE SHOWN
Dec 31 Mar 31 Jun 30 Sep 30 Dec 31 Mar 31 Jun 30 Sep 30
2002 2003 2003 2003 2003 2004 2004 2004
Interest rate on loans and
mortgage-backed securities* 7.10% 6.94% 6.68% 6.40% 6.31% 6.23% 6.16% 6.17%
Interest rate on
investment securities** ... 2.29 2.28 2.00 1.98 1.75 2.26 2.61 3.01
Combined 6.06 5.84 5.49 5.28 5.21 5.30 5.44 5.62
Interest rate on
customer accounts 2.65 2.42 2.19 1.96 1.92 1.87 1.90 1.96
Interest rate on
borrowings 5.03 5.03 5.03 5.03 5.03 5.03 5.03 4.96
Combined........... 3.32 3.16 3.00 2.81 2.78 2.75 2.67 2.62
Interest rate spread..... 2.74% 2.68% 2.49% 2.47% 2.43% 2.55% 2.77% 3.00%
* Includes securitized assets subject to repurchase
** Includes municipal bonds at tax-equivalent rates and cash equivalents
The interest rate spread increased during fiscal 2004 from 2.47% at September
30, 2003 to 3.00% at September 30, 2004. See "Interest Rate Risk" above.
COMPARISON OF FISCAL 2004 RESULTS WITH FISCAL 2003
Interest income on loans, securitized assets subject to repurchase and
mortgage-backed securities decreased $35,786,000 (8.6%) in fiscal 2004 from 2003
as interest rates declined to 6.17% from 6.40% one year ago. The Company
originated $2,070,984,000 in loans, which was offset by loan repayments and
payoffs of $1,693,142,000 in fiscal 2004.
Interest and dividend income on investment securities and cash equivalents
increased $263,000 (0.8%) in fiscal 2004 from fiscal 2003. Rates increased to
3.01% at September 30, 2004 compared with 1.98% at September 30, 2003, primarily
as a result of the increase in short term interest rates during 2004. The
combined investment securities, cash equivalents and FHLB stock portfolio
decreased 34.1% to $1,211,957,000 at September 30, 2004 versus $1,839,847,000
one year ago.
Interest expense on customer accounts decreased 18.7% to $86,099,000 for fiscal
2004 from $105,919,000 for fiscal 2003. The decrease related to a small increase
in customer accounts to $4,610,358,000 from $4,577,598,000 the prior year,
coupled with a significant decrease in the average cost of customer accounts to
1.89% at year end compared to 2.38% one year ago. This decrease was primarily
the result of higher rate CD's repricing throughout the year to lower market
rates.
Interest expense on FHLB advances and other borrowings decreased to $83,654,000
in fiscal 2004 from $88,965,000 in fiscal 2003 primarily due to the repayment of
$450,000,000 in FHLB advances during the year. The average cost of borrowings as
of September 30, 2004 decreased to 4.96% from 5.03% from one year ago.
The Company recorded a $231,000 reversal of the provision for loan losses in
fiscal 2004 compared to a $1,500,000 increase in the provision in fiscal 2003.
This decrease reflects a reduction in the Company's nonperforming loan balances
as well as an improvement in the number of delinquent loans. Non-performing
assets decreased to $14,945,000, or .21% of total assets at September 30, 2004
compared with $27,434,000, or .36% of total assets at September 30, 2003.
Management believes the allowance for loan losses, totaling $25,140,000, or 168%
of non-performing assets, is sufficient to absorb estimated losses inherent in
the portfolio.
Total other income decreased $11,622,000 (69.3%) in fiscal 2004 from fiscal
2003. This decrease is primarily the result of a one-time pre-tax charge of
$5,191,000 related to the extinguishment of debt in fiscal 2004 compared to a
$3,382,000 gain on the sale of real estate in fiscal 2003. Net losses on the
sale of securities totaled $890,000 in fiscal 2004 compared to net gains of
$1,040,000 in fiscal 2003.
Total other expense increased $505,000 (1.1%) in fiscal 2004 over fiscal 2003.
Compensation expense remained relatively constant by increasing $565,000 in
fiscal 2004. Personnel, including part-time employees considered on a full-time
equivalent basis, remained the same at 754 at September 30, 2004 compared to one
year ago. Routine operating expenses, including data processing, decreased
$2,346,000 in fiscal 2004 due to an increase of deferred loan origination costs
associated with record production (per SFAS No. 91) and general cost containment
measures. The branch network increased to 120 offices at September 30, 2004
versus 119 offices one year ago. Other expense for both fiscal 2004 and 2003
equaled .62% of average assets.
Income tax expense decreased $2,836,000 (3.5%) in fiscal 2004. The effective tax
rate was 35.27% for fiscal 2004 versus 35.19% for fiscal 2003.
COMPARISON OF FISCAL 2003 RESULTS WITH FISCAL 2002
10
Interest income on loans, securitized assets subject to repurchase and
mortgage-backed securities decreased $73,935,000 (15.1%) 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 $2,604,297,000 in fiscal 2003.
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 for the year ended September 30, 2003 from
$1,568,220,000 for the prior year. 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 $6,720,000 (66.9%) 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 $1,040,000 in fiscal 2003
compared to $765,000 in fiscal 2002.
Total other expense decreased $5,069,000 (10.0%) 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 decreased $2,088,000 (2.6%) in fiscal 2003. The effective tax
rate was 35.19% for fiscal 2003 versus 35.26% for fiscal 2002.
11
SELECTED FINANCIAL DATA
Year ended September 30, 2004 2003 2002 2001 2000
(In thousands, except per share data)
Interest income $ 413,772 $ 449,295 $ 511,802 $ 540,064 $ 495,949
Interest expense 169,753 194,884 234,941 320,120 299,511
Net interest income 244,019 254,411 276,861 219,944 196,438
Provision for (reversal of) loan losses (231) 1,500 7,000 1,850 --
Other income 5,726 16,571 10,163 12,013 11,309
Other expense 46,264 45,759 50,828 48,697 44,568
Income before income taxes 203,712 223,723 229,196 181,410 163,179
Income taxes 71,844 78,724 80,812 63,946 57,500
Net income $ 131,868 $ 144,999 $ 148,384 $ 117,464 $ 105,679
Per share data
Basic earnings $ 1.68 $ 1.89 $ 1.93 $ 1.53 $ 1.37
Diluted earnings 1.66 1.88 1.91 1.52 1.36
Cash dividends 0.82 0.78 0.74 0.70 0.67
September 30, 2004 2003 2002 2001 2000
(In thousands)
Total assets $7,169,205 $7,535,975 $7,392,441 $7,026,743 $6,719,841
Loans and mortgage-backed securities* 5,734,658 5,443,266 5,990,223 6,537,010 6,277,340
Investment securities** 1,074,683 1,696,169 1,044,417 145,724 142,992
Customer accounts 4,610,358 4,577,598 4,521,922 4,316,692 3,465,270
FHLB advances 1,200,000 1,650,000 1,650,000 1,637,500 1,209,000
Other borrowings 100,000 100,000 100,000 30,000 1,154,509
Stockholders' equity 1,120,188 1,055,596 960,718 874,009 759,165
Number of
Customer accounts 216,405 217,785 213,404 211,570 191,343
Mortgage loans 34,873 33,975 38,096 42,032 41,741
Offices 120 119 115 111 108
* Includes securitized assets subject to repurchase
** Includes cash equivalents and repurchase agreements
12
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 2004 2003
- ------------- ---- ----
(In thousands)
ASSETS
Cash and cash equivalents, including repurchase agreements of $460,000 and $1,350,000 $ 508,361 $ 1,437,208
Repurchase agreements 200,000 --
Available-for-sale securities, including encumbered securities of $64,587 and $76,921, at fair value 899,525 781,798
Held-to-maturity securities, including encumbered securities of $54,811 and $75,690,at amortized cost 156,373 154,178
Securitized assets subject to repurchase, net 110,607 210,782
Loans receivable, net 4,982,836 4,606,726
Interest receivable 29,832 29,489
Premises and equipment, net 63,049 60,942
Real estate held for sale 8,630 16,204
FHLB stock 137,274 143,851
Intangible assets 58,939 60,336
Other assets 13,779 34,461
----------- -----------
$ 7,169,205 $ 7,535,975
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Customer accounts
Savings and demand accounts $ 4,569,245 $ 4,520,051
Repurchase agreements with customers 41,113 57,547
------ ------
4,610,358 4,577,598
FHLB advances 1,200,000 1,650,000
Other borrowings, primarily securities sold under agreements to repurchase 100,000 100,000
Advance payments by borrowers for taxes and insurance 25,226 23,281
Federal and state income taxes, including net deferred liabilities of $55,522 and $70,485 62,081 70,011
Accrued expenses and other liabilities 51,352 59,489
------ ------
6,049,017 6,480,379
Stockholders' equity
Common stock, $1.00 par value, 100,000,000 shares authorized, 94,383,496 and 94,109,168
shares issued; 78,679,597 and 78,290,836 shares outstanding 94,383 85,554
Paid-in capital 1,161,627 1,085,650
Accumulated other comprehensive income, net of tax 17,107 26,890
Treasury stock, at cost; 15,703,899 and 15,818,332 shares (206,666) (207,337)
Retained earnings 53,737 64,839
----------- -----------
1,120,188 1,055,596
----------- -----------
$ 7,169,205 $ 7,535,975
----------- -----------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended September 30, 2004 2003 2002
- ------------------------ ---- ---- ----
(In thousands, except per share data)
INTEREST INCOME
Loans and securitized assets subject to repurchase $ 330,967 $ 353,286 $ 406,262
Mortgage-backed securities 48,554 62,021 82,980
Investment securities 34,251 33,988 22,560
------------ ------------ ------------
413,772 449,295 511,802
INTEREST EXPENSE
Customer accounts 86,099 105,919 152,288
FHLB advances and other borrowings 83,654 88,965 82,653
------------ ------------ ------------
169,753 194,884 234,941
------------ ------------ ------------
Net interest income 244,019 254,411 276,861
Provision for (reversal of) loan losses (231) 1,500 7,000
------------ ------------ ------------
Net interest income after provision for loan losses 244,250 252,911 269,861
OTHER INCOME
Gain (loss) on sale of securities, net (890) 1,040 765
Gain on sale of real estate -- 3,382 --
Loss on extinguishment of debt (5,191)
Other 11,224 12,343 9,280
------------ ------------ ------------
5,143 16,765 10,045
OTHER EXPENSE
Compensation and fringe benefits 31,411 30,846 34,059
Amortization of intangibles 1,397 126 --
Occupancy expense 7,813 6,798 6,735
Other 5,643 7,989 10,034
------------ ------------ ------------
46,264 45,759 50,828
Gain (loss) on real estate acquired through foreclosure, net 583 (194) 118
------------ ------------ ------------
Income before income taxes 203,712 223,723 229,196
Income taxes
Current 77,270 80,106 81,835
Deferred (5,426) (1,382) (1,023)
------------ ------------ ------------
71,844 78,724 80,812
------------ ------------ ------------
NET INCOME $ 131,868 $ 144,999 $ 148,384
------------ ------------ ------------
PER SHARE DATA
Basic earnings $ 1.68 $ 1.89 $ 1.93
Diluted earnings 1.66 1.88 1.91
Cash dividends 0.82 0.78 0.74
Weighted average number of shares outstanding,
including dilutive stock options 79,209,806 77,255,964 77,575,477
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14
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, 2001 $ 69,006 $ 893,633 $ 53,432 $ 47,150 $(189,212) $ 874,009
Eleven-for-ten stock split
distributed February 22, 2002 6,905 70,824 (77,792) (63)
Comprehensive income:
Net income 148,384 148,384
Other comprehensive income,
net of tax of $310:
Unrealized gains on securities and derivatives 1,065 1,065
Reclassification adjustment for losses 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 66,207 47,720 (198,279) 960,718
--------- ----------- -------- -------- --------- ----------
Eleven-for-ten stock split
distributed February 21, 2003 7,622 79,612 (87,369) (135)
Comprehensive income:
Net income 144,999 144,999
Other comprehensive income,
net of tax of $11,340:
Unrealized losses on securities and derivatives (20,157) (20,157)
Reclassification adjustment for losses on
securities sold (673) (673)
----------
Total comprehensive income 124,169
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 64,839 26,890 (207,337) 1,055,596
--------- ----------- -------- -------- --------- ----------
Eleven-for-ten stock split
distributed February 20, 2004 8,558 70,066 (78,624) --
Comprehensive income:
Net income 131,868 131,868
Other comprehensive income,
net of tax of $5,326:
Unrealized losses on securities and derivatives (10,359) (10,359)
Reclassification adjustment for gains on
securities sold 576 576
----------
Total comprehensive income 122,085
Dividends (64,696) (64,696)
Proceeds from exercise of
common stock options 250 3,267 3,517
Tax benefit related to exercise
of stock options 748 748
Proceeds from Employee
Stock Ownership Plan 2,085 2,610 4,695
Restricted stock 21 559 (398) 182
Treasury stock purchases (1,939) (1,939)
--------- ----------- -------- -------- --------- ----------
Balance at September 30, 2004 $ 94,383 $1,161,627 $ 53,737 $ 17,107 $(206,666) $1,120,188
--------- ----------- -------- -------- --------- ----------
See NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended September 30, 2004 2003 2002
- ------------------------ ------------ ------------ ------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 131,868 $ 144,999 $ 148,384
Adjustments to reconcile net income to net cash provided
by operating activities
Amortization of fees, discounts and premiums, net (12,792) (12,206) (14,719)
Amortization of intangible assets 1,397 126 --
Depreciation 2,624 3,099 3,521
Provision for (reversal of) loan losses (231) 1,500 7,000
Loss (gain) on investment securities and real estate held for sale, net 306 (4,228) (883)
Loss on extinguishment of debt 5,191 -- --
Decrease (increase) in accrued interest receivable (343) 9,126 8,777
Increase (decrease) in income taxes payable 1,607 (5,308) (11,883)
FHLB stock redemption (dividends) 6,577 (8,155) (7,959)
Decrease (increase) in other assets 10,195 (11,202) 3,810
Increase (decrease) in accrued expenses and other liabilities (8,137) 3,226 1,634
------------ ------------ ------------
Net cash provided by operating activities 138,262 120,977 137,682
CASH FLOWS FROM INVESTING ACTIVITIES
Loans originated
Single-family residential loans (1,108,216) (1,059,450) (851,279)
Construction loans (580,882) (487,692) (363,420)
Land loans (244,048) (163,533) (87,212)
Multi-family loans (137,838) (156,437) (128,923)
------------ ------------ ------------
(2,070,984) (1,867,112) (1,430,834)
Savings account loans originated (1,779) (1,866) (5,765)
Loan principal repayments 1,693,142 2,604,297 1,823,281
Increase (decrease) in undisbursed loans in process 127,591 71,804 (13,323)
Loans purchased (31,911) (417,669) (60,874)
Repurchase agreements purchased (200,000) -- --
Available-for-sale securities purchased (666,990) (459,895) (180,683)
Principal payments and maturities of available-for-sale securities 250,431 487,438 344,986
Available-for-sale securities sold 303,171 80,000 10,000
Held-to-maturity securities purchased (56,900) (100,100) --
Principal payments and maturities of held-to-maturity securities 55,196 115,812 80,154
Cash provided by acquisition -- 94,314 --
Proceeds from sales of real estate held for sale 14,816 16,342 19,603
Premises and equipment purchased, net (4,731) (4,730) (4,398)
------------ ------------ ------------
Net cash provided (used) by investing activities (588,948) 618,635 582,147
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in customer accounts 32,760 (214,248) 205,230
Net decrease in short-term borrowings (255,191) -- (117,500)
Proceeds from (repayments of) long-term borrowings (200,000) -- 200,000
Proceeds from exercise of common stock options 4,265 5,944 3,744
Dividends paid (64,696) (60,004) (57,383)
Proceeds from Employee Stock Ownership Plan 4,695 1,522 1,618
Treasury stock purchased, net (1,939) (10,034) (10,224)
Increase (decrease) in advance payments by borrowers for taxes and insurance 1,945 (737) (492)
------------ ------------ ------------
Net cash provided (used) by financing activities (478,161) (277,557) 224,993
Increase (decrease) in cash and cash equivalents (928,847) 462,055 944,822
Cash and cash equivalents at beginning of year 1,437,208 975,153 30,331
------------ ------------ ------------
Cash and cash equivalents at end of year $ 508,361 $ 1,437,208 $ 975,153
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Non-cash investing activities
Real estate acquired through foreclosure $ 6,659 $ 11,771 $ 20,294
Cash paid during the year for
Interest 172,195 195,360 237,480
Income taxes 75,004 83,878 90,743
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
16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 2004, 2003 AND 2002
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation. The consolidated financial statements include the
accounts of Washington Federal, Inc. (Company or Washington Federal) and its
wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
Description of business. Washington Federal, Inc. is a savings and loan holding
company. The Company's principal operating subsidiary is Washington Federal
Savings. The 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 120 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.
Repurchase Agreements. Repurchase agreements are fully collateralized
investments with an initial maturity exceeding three months.
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 through
earnings 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 net book value is recovered. Any other than temporary
declines in fair value are recognized in the statement of operations as loss
from securities.
Premiums and discounts on investments are deferred and recognized over the life
of the asset using the effective interest method.
Forward contracts to purchase mortgage-backed securities are recorded at fair
value on the statement of financial condition as a part of other assets. These
contracts are designated by the Company as cash flow hedges of the price risk of
the anticipated purchase of securities. On the date the Company enters into a
derivative contract, the derivative instrument is designated as a hedge of the
variability in expected future cash flows associated with a probable future
transaction. The Company uses a series of short term commitments that are
modified (rolled) to match the term of the anticipated transaction. Under cash
flow hedge accounting, if specific criteria are met, the effective portion the
derivative instrument is recognized as a component of stockholders' equity
through comprehensive income until the related forecasted transaction affects
earnings, either through the recognition of interest income or through the sale
of the security. To the extent that forward contracts to purchase securities are
not designated as cash flow hedges or 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.
17
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 effective portion of the change in
market value associated with the contract is recorded through comprehensive
income. To the extent that forward sales contracts are not designated as cash
flow hedges or 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 other assets.
The Company is hedging the spot price at inception of the hedge. Changes to the
contractual price of the forward contract over the length of time the contract
is rolled forward are excluded from the effectiveness test and included in
earnings. There is no ineffectiveness associated with the changes in the spot
price from inception to delivery of the contract because the underlying security
of the derivative instrument is the same as that of the forecasted transaction.
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 statement of financial condition 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 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 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.
18
Deferred fees and discounts on loans. Loan discounts and loan fees are deferred
and recognized over the life of the loans using the effective interest method
based on actual loan payments. Deferred loan origination costs are deducted from
other expenses.
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, 2004 2003 2002
- ------------------------ ---- ---- ----
Annual dividend yield 3.42% 4.19% 4.00%
Expected volatility 27% 28% 27%
Risk-free interest rate 3.14% 2.63% 3.52%
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, 2004 2003 2002
- ------------------------ ------ ------ ------
(In thousands, except per share data)
Net income, as reported $ 131,868 $ 144,999 $ 148,384
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects (1,824) (1,111) (1,149)
---------- ---------- ----------
Pro forma net income $ 130,044 $ 143,888 $ 147,235
Earnings per share:
Basic - as reported $ 1.68 $ 1.89 $ 1.93
Basic - pro forma 1.66 1.88 1.92
Diluted - as reported 1.66 1.88 1.91
Diluted - pro forma 1.64 1.86 1.90
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 2004, 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 December 2003, the FASB revised FIN No. 46,
"Consolidation of Variable Interest Entities". This revision provides modified
accounting guidance on how to identify and account for 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
19
a corporation's consolidated financial statements. The revision of FIN 46
required the Company to consolidate its $3,096,000 investment in a low-income
housing partnership.
In March of 2004, the Emerging Issues Task Force ("EITF") reached consensus on
the guidance provided in EITF Issue No. 03-1,The Meaning of Other-Than-Temporary
Impairment and its Application to Certain Investments. Among other investments,
this guidance is applicable to debt and equity securities that are within the
scope of Statement No. 115, Accounting for Certain Investments in Debt and
Equity Securities. Paragraph 10 of EITF 03-1 specifies that an impairment would
be considered other-than-temporary unless (a) the investor has the ability and
intent to hold an investment for a reasonable period of time sufficient for the
recovery of the fair value up to (or beyond) the cost of the investment and (b)
evidence indicating that the cost of the investment is recoverable within a
reasonable period of time outweighs evidence to the contrary. A company's
liquidity and capital requirements should be considered when assessing its
intent and ability to hold an investment for a reasonable period of time that
would allow the fair value of the investment to recover up to or beyond its
cost. Although not presumptive, a pattern of selling investments prior to the
forecasted fair value recovery may call into question a company's intent. In
addition, the severity and duration of the impairment should also be considered
when determining whether the impairment is other-than-temporary. This guidance
was effective for reporting periods beginning after June 15, 2004 with the
exception of paragraphs 10 - 20 of EITF 03-1, which will be deliberated further.
This delay does not suspend the requirement to recognize other-than-temporary
impairments as required by existing authoritative literature. After the FASB
completes their deliberations with respect to paragraphs 10 - 20, the Company
will evaluate the potential impact of those paragraphs on its process for
determining whether other-than-temporary declines exist within its debt and
equity investment securities portfolio. The outcome of this deliberation may
accelerate the recognition of losses from declines in value on debt securities
due to interest rates; however, it is not anticipated to have a significant
impact on stockholders' equity as changes in market value of available-for-sale
securities are already included in Accumulated Other Comprehensive Income.
Reclassifications. Certain reclassifications have been made to the financial
statements for years prior to September 30, 2004 to conform to current year
classifications.
20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE B
INVESTMENT SECURITIES
September 30, 2004
- ------------------------------------------- --------------------------------------------------------------------------
(In thousands)
Amortized Gross Unrealized Fair
Cost Gains Losses Value Yield
----------- ----------- ------------ ----------- -------
Available-for-sale securities
U.S. government and agency securities due
Within 1 year $ 328,503 $ 379 $ (4,546) $ 324,336 4.47%
5 to 10 years 38,628 970 (671) 38,927 5.96
Over 10 years 9,281 5,078 -- 14,359 10.41
Mortgage-backed securities
Agency pass-through certificates 501,102 21,222 (421) 521,903 6.16
----------- ----------- ----------- ----------- -------
877,514 27,649 (5,638) 899,525 5.56
Held-to-maturity securities
Tax-exempt municipal bonds due
5 to 10 years 1,804 309 -- 2,113 9.06
Over 10 years 8,357 1,052 -- 9,409 8.61
U.S. government and agency securities due
1 to 5 years 26,900 -- -- 26,900 2.95
Mortgage-backed securities
Agency pass-through certificates 119,312 2,705 (1,647) 120,370 5.76
----------- ----------- ----------- ----------- -------
156,373 4,066 (1,647) 158,792 5.47
----------- ----------- ----------- ----------- -------
$ 1,033,887 $ 31,715 $ (7,285) $ 1,058,317 5.55%
September 30, 2003
- ------------------------------------------ --------------------------------------------------------------------------
(In thousands)
Amortized Gross Unrealized 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
5 to 10 years 10,509 -- (9) 10,500 5.36
Over 10 years 13,941 5,732 -- 19,673 9.29
Mortgage-backed securities
Agency pass-through certificates 462,948 22,922 (161) 485,709 6.14
----------- ----------- ----------- ----------- -------
753,859 29,096 (1,157) 781,798 5.46
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
U.S. government and agency securities due
1 to 5 years -- -- -- -- --
Mortgage-backed securities
Agency pass-through certificates 140,049 4,506 (1,185) 143,370 6.27
----------- ----------- ----------- ----------- -------
154,178 6,093 (1,185) 159,086 6.50
----------- ----------- ----------- ----------- -------
$ 908,037 $ 35,189 $ (2,342) $ 940,884 5.63%
Yields shown in the table above represent tax-equivalent yields, calculated as
1.49 times the tax-free municipal yield.
$303.2 million in available-for-sale investment securities and a $1.8 million
held-to-maturity (HTM) security were sold in fiscal 2004, resulting in a net
loss of $890,000. The $1.8 million HTM security sale did not taint the remaining
HTM securities in the Company's portfolio because over 87% of the related
principal had been collected. $80.0 million in available-for-sale securities
were sold in fiscal 2003, resulting in a net gain of $1,040,000. A $10.0 million
available-for-sale security was sold in fiscal 2002, resulting in a gain of
$765,000.
Substantially all mortgage-backed securities have contractual due dates that
exceed 10 years.
The following table shows the unrealized gross losses and fair value of
securities in the available for sale portfolio at September 30, 2004, by length
of time that individual securities in each category have been in a continuous
loss position. The
21
Company had a limited number of securities in a continuous loss position for 12
or more months at September 30, 2004, which consisted of mortgage backed
securities and bonds. Because the declines in fair value were due to changes in
market interest rates, not in estimated cash flows, no other-than-temporary
impairment was recorded at September 30, 2004.
As of September 30, 2004
(In thousands)
Less than 12 months 12 months or more Total
---------------------------- ------------------------ -----------------------
Unrealized Fair Unrealized Fair Unrealized Fair
Gross Losses Value Gross Losses Value Gross Losses Value
------------ --------- ------------ -------- ------------ ---------
U.S. agency securities $ (5,214) $ 85,413 $ (3) $ 500 $ (5,217) $ 85,913
Agency pass-through certificates (207) 39,707 (214) 10,558 (421) 50,265
-------- --------- ------- -------- -------- ---------
$ (5,421) $ 125,120 $ (217) $ 11,058 $ (5,638) $ 136,178
NOTE C
DERIVATIVE INSTRUMENTS
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 estimated amount of net unrealized gains that may be
recorded through earnings in the next twelve months is $0.5 million (after tax),
assuming a 20% prepayment of principal of the underlying security. The net after
tax impact of excluding the changes in the contractual price of the forward
commitments from the effectiveness test was $4,086,000, $2,321,000 and
$8,702,000 for fiscal years 2004, 2003 and 2002, respectively. These amounts
were recorded through the statement of operations as additions to interest
income on mortgage backed securities. The Company has determined anticipated
purchase dates for each forward commitment to purchase ranging from October 2004
through February 2007. The net fair value of these contracts is included as a
part of other assets. The related mortgage-backed securities are designated as
available-for-sale securities upon exercise of the commitments to purchase.
The notional amounts, fair value and unrealized gains (losses) on the forward
contracts were as follows:
September 30, 2004 2003
- ----------------------- ------------------------------------- ------------------------------------
(In thousands)
Notional Fair Unrealized Notional Fair Unrealized
Amount Value Gain (Loss) Amount Value Gain (loss)
--------- ------- ----------- --------- --------- -----------
Commitments to purchase $315,000 $10,259 $4,167 $320,000 $28,909 $18,281
Commitments to sell -- -- -- 160,000 (6,521) (4,456)
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D
LOANS RECEIVABLE AND SECURITIZED ASSETS SUBJECT TO REPURCHASE
September 30, 2004 2003
- ---------------------------------------- ---------- ----------
(In thousands)
Conventional real estate
Single-family residential $3,982,632 $3,851,720
Multi-family 467,354 479,129
Land 297,350 217,214
Construction 845,260 639,058
---------- ----------
5,592,596 5,187,121
Less
Allowance for loan losses 25,140 25,806
Loans in process 435,128 307,537
Deferred loan origination fees 38,885 36,270
---------- ----------
499,153 369,613
---------- ----------
$5,093,443 $4,817,508
The Company originates adjustable and fixed interest rate loans, which at
September 30, 2004 consisted of the following:
Fixed-Rate Adjustable-Rate
(In thousands) (In thousands)
Term to Maturity Book Value Term to Rate Adjustment Book Value
- ---------------- ---------- ----------------------- ----------
Within 1 year $ 24,834 Less than 1 year $732,014
1 to 3 years 108,545 1 to 3 years 160,060
3 to 5 years 67,434 3 to 5 years 135,591
5 to 10 years 265,432 5 to 10 years 13,142
10 to 20 years 462,975 10 to 20 years --
Over 20 years 3,622,569 Over 20 years --
---------- ----------
$4,551,789 $1,040,807
---------- ----------
At September 30, 2004 and 2003, approximately $36,214,000 and $52,287,000 of
fixed-rate loan origination commitments were outstanding, respectively. Loans
serviced for others at September 30, 2004 and 2003 were approximately
$22,368,000 and $35,415,000, respectively.
Permanent single-family residential loans receivable included adjustable-rate
loans of $66,431,000 and $101,719,000 at September 30, 2004 and 2003,
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, 2004 Washington Idaho Oregon Utah Arizona Other Total
- -------------------------- ---------- -------- ---------- -------- --------- -------- -----------
(In thousands)
Conventional real estate
Single-family residential $1,675,836 $460,490 $682,603 $413,322 $401,105 $349,276 $3,982,632
Multi-family 90,948 37,533 192,526 31,778 89,713 24,856 467,354
Land 159,774 40,794 25,845 25,794 34,693 10,450 297,350
Construction 391,697 113,604 155,035 90,195 68,517 26,212 845,260
---------- -------- ---------- -------- -------- -------- ----------
$2,318,255 $652,421 $1,056,009 $561,089 $594,028 $410,794 $5,592,596
---------- -------- ---------- -------- -------- -------- ----------
At September 30, 2004, the Company's recorded investment in impaired loans was
$2.2 million with allocated reserves of $0.7 million. At September 30, 2003 the
Company's recorded investment in impaired loans was $9.6 million with allocated
reserves of $1.0 million. The average balance of impaired loans during 2004,
2003 and 2002 was $4.6 million, $13.3 million and $12.7 million and interest
income from impaired loans was $283,000, $851,000 and $922,000, respectively.
23
NOTE E
ALLOWANCE FOR LOSSES ON LOANS AND SECURITIZED ASSETS SUBJECT TO REPURCHASE
Year ended September 30, 2004 2003 2002
- ------------------------------- --------- -------- ----------
(In thousands)
Balance at beginning of year $ 25,806 $ 23,912 $ 19,683
Provision for (reversal of) loan losses (231) 1,500 7,000
Charge-offs (528) (1,310) (3,401)
Recoveries 93 107 630
Acquired reserves -- 1,597 --
-------- -------- --------
Balance at end of year $ 25,140 $ 25,806 $ 23,912
-------- -------- --------
NOTE F
INTEREST RECEIVABLE
2004 2003
September 30, ---------- ---------
- ----------------------------- (In thousands)
Loans receivable and securitized assets subject to repurchase $ 24,094 $ 24,929
Allowance for uncollected interest on loans receivable (464) (807)
Mortgage-backed securities 3,159 3,043
Investment securities 3,043 2,324
-------- --------
$ 29,832 $ 29,489
-------- --------
NOTE G
PREMISES AND EQUIPMENT
Estimated
September 30, Useful Life 2004 2003
- -------------------- ------------ --------- --------
(In thousands)
Land -- $ 21,109 $18,982
Buildings 25 - 40 57,476 55,509
Leasehold improvements 7 - 15 5,564 5,409
Furniture, fixtures and equipment 2 - 10 14,484 15,446
-------- -------
98,633 95,346
Less accumulated depreciation (35,584) (34,404)
-------- -------
$ 63,049 $60,942
-------- -------
The Company has non-cancelable operating leases for branch offices. Future
minimum net rental commitments for all non-cancelable leases, including
maintenance and associated costs, are immaterial. Rental expense, including
amounts paid under month-to-month cancelable leases, amounted to $1,949,000,
$1,862,000 and $1,895,000 in 2004, 2003 and 2002, respectively.
NOTE H
REAL ESTATE HELD FOR SALE
September 30, 2004 2003
- ----------------------------- -------- ---------
(In thousands)
Acquired for development $ 4,813 $ 4,708
Acquired in settlement of loans 3,817 11,496
------- -------
$ 8,630 $16,204
------- -------
24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I
CUSTOMER ACCOUNTS
2004 2003
September 30, ----------- ------------
- ------------------- (In thousands)
Checking accounts, .75% and under $ 196,155 $ 190,352
Passbook and statement accounts, .75% 224,989 234,023
Insured money market accounts, .50% to 1.75% 929,952 1,037,641
Certificate accounts
Less than 3.00% 2,590,304 2,401,924
3.00% to 3.99% 229,606 257,646
4.00% to 4.99% 280,166 258,875
5.00% to 5.99% 101,973 120,960
6.00% to 6.99% 16,000 18,139
7.00% and over 100 491
----------- -----------
Total certificates 3,218,149 3,058,035
----------- -----------
Repurchase agreements with customers, .75% to 2.20% 41,113 57,547
----------- -----------
$4,610,358 $4,577,598
----------- -----------
Certificate maturities were as follows:
September 30, 2004 2003
- ------------------ ---------- -----------
(In thousands)
Within 1 year $2,355,240 $2,313,645
1 to 2 years 445,037 236,988
3 to 4 years 282,248 183,379
Over 4 years 135,624 324,023
---------- ----------
$3,218,149 $3,058,035
---------- ----------
Customer accounts over $100,000 totaled $1,199,000,000 as of September 30, 2004
and $1,133,000,000 as of September 30, 2003.
Interest expense on customer accounts consisted of the following:
Year ended September 30, 2004 2003 2002
- ------------------------- ---------- ---------- ----------
(In thousands)
Checking accounts $ 1,199 $ 1,655 $ 2,310
Passbook and statement accounts 1,703 2,114 3,201
Insured money market accounts 8,185 14,947 22,231
Certificate accounts 74,559 85,931 122,705
--------- --------- ---------
85,646 104,647 150,447
Repurchase agreements with customers 858 1,651 2,259
--------- --------- ---------
86,504 106,298 152,706
Less early withdrawal penalties (405) (379) (418)
--------- --------- ---------
$ 86,099 $ 105,919 $ 152,288
--------- --------- ---------
Weighted-average interest rate at end of year 2.00% 1.94% 2.96%
Weighted daily average interest rate
during the year 1.89 2.38 3.41
25
NOTE J
FHLB ADVANCES
Maturity dates of FHLB advances were as follows:
September 30, 2004 2003
- ------------- ---- ----
(In thousands)
FHLB advances due
Within 1 year $ --- $ 250,000
1 to 3 years 100,000 300,000
4 to 5 years 400,000 400,000
More than 5 years 700,000 700,000
---------- ----------
$1,200,000 $1,650,000
---------- ----------
Included in the table above are $1,100,000,000 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, 2004 2003
- ------------- ---- ----
(In thousands)
FHLB advances due
Within 1 year $ 800,000 $ 850,000
1 to 3 years 400,000 700,000
4 to 5 years --- 100,000
More than 5 years --- ---
---------- ----------
$1,200,000 $1,650,000
---------- ----------
Financial data pertaining to the weighted-average cost and the amount of FHLB
advances were as follows:
September 30, 2004 2003 2002
- ------------- ---- ---- ----
(In thousands)
Weighted-average interest rate at end of year 5.09% 5.13% 5.13%
Weighted daily average interest rate during the year 5.21 5.19 5.28
Daily average of FHLB advances $1,539,594 $1,650,023 $1,558,384
Maximum amount of FHLB advances at any month end 1,651,000 1,654,000 1,654,000
Interest expense during the year 80,257 85,564 82,357
FHLB advances are collateralized as provided for in the Advances, Pledge and
Security Agreement by all FHLB stock owned by the Company, deposits with the
FHLB and certain mortgage loans as provided in the agreements with the FHLB. As
a member of the FHLB of Seattle, the Company currently has a credit line of 35%
of the total assets of the Company, subject to collateralization requirements.
NOTE K
OTHER BORROWINGS
September 30, 2004 2003
- ------------- ---- ----
(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 three years ended September 30, 2004 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.
26
Financial data pertaining to the weighted-average cost and the amount of
securities sold under agreements to repurchase were as follows:
September 30, 2004 2003 2002
- ------------- ---- ---- ----
(In thousands)
Weighted-average interest rate at end of year 3.44% 3.44% 3.36%
Weighted daily average interest rate during the year 3.40 3.39 3.36
Daily average of securities sold under agreements
to repurchase $100,000 $100,000 $ 4,110
Maximum securities sold under agreements to repurchase
at any month end 100,000 100,000 100,000
Interest expense during the year 3,397 3,338 140
NOTE L
INCOME TAXES
The consolidated statements of financial condition at September 30, 2004 and
2003 include deferred tax liabilities of $55,522,000 and $70,485,000,
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, 2004 2003
- ------------- ---- ----
(In thousands)
Deferred tax assets
Deferred compensation $ 176 $ 198
Loan loss reserves 9,176 3,437
------- -------
Total deferred tax assets 9,352 3,635
------- -------
Deferred tax liabilities
FHLB stock dividends 32,838 31,919
Core deposit intangible 1,300 1,748
Discounts --- 413
Deferred gain on forward commitments 4,360 ---
Valuation adjustment on securities and derivatives 9,313 18,850
Depreciation 6,139 3,528
Loan origination costs 9,926 13,640
Securitized asset subject to repurchase valuation adjustment 365 673
Other, net 633 3,349
------- -------
Total deferred tax liabilities 64,874 74,120
------- -------
Net deferred tax liability $55,522 $70,485
------- -------
A reconciliation of the statutory federal income tax rate to the effective
income tax rate follows:
Year ended September 30, 2004 2003 2002
- ------------------------ ---- ---- ----
Statutory income tax rate 35% 35% 35%
Dividend received deduction (1) (1) (1)
Other (1) (1) ---
State income tax 2 2 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 Company, 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 Company is required to pay approximately
$25,406,000 in additional federal income taxes, all of which has been previously
provided, through fiscal 2004.
The Company has been examined by the Internal Revenue Service through the year
ended September 30, 1990. There were no material changes made to the Company's
taxable income, as originally reported, as a result of this examination.
NOTE M
PROFIT SHARING RETIREMENT 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.
Plan participants may make voluntary after-tax contributions of their considered
earnings as defined by the Plan. In addition, participants may make pre-tax
contributions up to the statutory limits through the 401(k) provisions of the
Plan. The annual addition from contributions to an individual participant's
account in this Plan cannot exceed 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 $2,101,000, $2,001,000 and $2,039,000 for
the years ended September 30, 2004, 2003 and 2002, respectively.
27
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 2,471,509 shares,
4,072,819 shares and 3,726,800 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
10,271,128 total shares authorized by stockholders under the three plans,
3,726,800 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, 2001 $12.89 2,252,515
Granted in 2002 16.64 926,921 $3.42
Exercised in 2002 10.71 (349,729)
Forfeited in 2002 14.56 (181,731)
------ ---------
Outstanding, September 30, 2002 14.38 2,647,976
Granted in 2003 18.48 90,387 3.22
Exercised in 2003 11.91 (430,294)
Forfeited in 2003 15.12 (174,838)
------ ---------
Outstanding, September 30, 2003 14.99 2,133,231
Granted in 2004 23.35 1,141,610 4.56
Exercised in 2004 13.38 (241,481)
Forfeited in 2004 17.80 (231,135)
------ ---------
Outstanding, September 30, 2004 $18.31 2,802,225
(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 was as follows:
September 30, 2004
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
--------------- ------------- ---------------- ------------- ------------- -------------
$ 8.10 - 14.11 637,491 4.8 years $12.69 255,463 $12.25
14.32 - 18.23 1,066,116 6.0 16.56 261,959 16.35
18.36 - 23.41 1,098,618 9.1 23.26 7,844 20.63
--------- --------- ------ ------- ------
2,802,225 6.9 years $18.31 525,266 $14.42
The Company also grants shares of restricted stock pursuant to its equity
compensation plans. These shares of restricted stock vest over a period of five
to seven years. The Company has issued a total of 70,000 shares of restricted
stock, with a fair market value at the date of grant of $1.7 million. As of
September 30, 2004, 51,036 shares remained restricted. The Company accounts for
restricted stock grants by recording the fair value of the grant to compensation
expense over the vesting period. At September 30, 2004, $1.3 million of unearned
compensation was recorded as a reduction to retained earnings.
28
NOTE O
STOCKHOLDERS' EQUITY
In the second quarter of fiscal 2004, 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.
Washington Federal Savings 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, Washington
Federal Savings must meet specific capital guidelines that involve quantitative
measures of Washington Federal Savings' assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices.
Washington Federal Savings' 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, 2004 and 2003, the OTS categorized Washington Federal
Savings as well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, Washington Federal Savings 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 Washington Federal
Savings' categorization.
Categorized as
Well Capitalized Under
Capital Prompt Corrective
Actual Adequacy Guidelines Action Provisions
Capital Ratio Capital Ratio Capital Ratio
September 30, 2004 (In thousands)
Total capital to risk-weighted assets $1,054,160 27.30% $308,886 8.00% $386,107 10.00%
Tier I capital to risk-weighted assets 1,036,851 26.85 NA NA 231,664 6.00
Core capital to adjusted tangible assets 1,036,851 14.65 NA NA 353,814 5.00
Core capital to total assets 1,036,851 14.65 212,289 3.00 NA NA
Tangible capital to tangible assets 1,036,851 14.65 106,144 1.50 NA NA
September 30, 2003
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
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 September 2004.
The Company has an ongoing stock repurchase program. During fiscal 2004, the
Company repurchased 85,000 shares at a weighted-average price of $22.81. In
fiscal 2003, the Company repurchased 561,077 shares at a weighted-average price
of $17.88. As of September 30, 2004, Management had authorization from the Board
of Directors to repurchase up to 3.0 million additional shares.
29
Information used to calculate earnings per share follows:
Year ended September 30, 2004 2003 2002
- ------------------------ ---- ---- ----
(In thousands, except per share data)
Net income $ 131,868 $ 144,999 $ 148,384
Weighted-average shares
Basic weighted-average number of
common shares outstanding 78,457,222 76,627,181 76,840,738
Dilutive effect of outstanding common stock equivalents 752,584 628,783 734,739
---------- ---------- ----------
Diluted weighted-average number of
common shares outstanding 79,209,806 77,255,964 77,575,477
========== ========== ==========
Net income per share
Basic $ 1.68 $ 1.89 $ 1.93
Diluted 1.66 1.88 1.91
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, 2004 2003
- ------------- -------------------------- -------------------------
(In thousands)
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
------ ---------- ------ ----------
Financial assets
Cash and cash equivalents $ 508,361 $ 508,361 $1,437,208 $1,437,208
Repurchase agreements 200,000 200,000 - -
Available-for-sale securities 899,525 899,525 781,798 781,798
Held-to-maturity securities 156,373 158,792 154,178 159,086
Loans receivable and securitized assets 5,093,443 5,164,765 4,817,508 4,899,274
FHLB stock 137,274 137,274 143,851 143,851
Forward contracts - Derivatives 10,259 10,259 22,388 22,388
Financial liabilities
Customer accounts 4,610,358 4,615,616 4,577,598 4,590,160
FHLB advances and other borrowings 1,300,000 1,357,405 1,750,000 1,825,532
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.
Repurchase agreements - 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.
Available for sale securities, held to maturity securities and derivatives -
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.
30
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 Company for debt with similar remaining
maturities.
NOTE Q
ACQUISITION AND INTANGIBLE ASSETS
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 and
severance 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.
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, 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
Accumulated amortization - (1,282) (115) (1,397)
-------- -------- -------- --------
Balance at September 30, 2004 $ 54,966 $ 3,523 $ 450 $ 58,939
The table below presents the estimated intangible asset amortization expense for
the next five years:
Year ended September 30, Amortization expense
- ------------------------ --------------------
(In thousands)
2005 $1,198
2006 1,000
2007 801
2008 593
2009 289
31
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
2004 2003
September 30, ---- ----
- ------------- (In thousands)
Assets
Cash $ 4,895 $ 4,527
Investment in subsidiary 1,117,827 1,053,451
Dividend receivable 12,000 12,000
----------- -----------
Total assets $ 1,134,722 $ 1,069,978
=========== ===========
Liabilities
Dividend payable and other liabilities $ 14,534 $ 14,382
Stockholders' equity
Common stock, $1.00 par value: 100,000,000 shares authorized;
94,383,496 and 94,109,168 shares issued;
78,679,597 and 78,290,836 shares outstanding $ 94,383 $ 85,554
Paid-in capital 1,161,627 1,085,650
Accumulated other comprehensive income, net of tax 17,107 26,890
Treasury stock, at cost; 15,703,899 and 15,818,332 shares (206,666) (207,337)
Retained earnings 53,737 64,839
----------- -----------
Total stockholders' equity 1,120,188 1,055,596
----------- -----------
Total liabilities and stockholders' equity $ 1,134,722 $ 1,069,978
=========== ===========
Statements of Operations
2004 2003 2002
Year ended September 30, ---- ---- ----
- ------------------------ (In thousands)
Income
Dividends from subsidiary $ 58,000 $ 63,500 $ 64,000
Expense
Miscellaneous 447 389 380
Net income before equity in undistributed net income of
subsidiary 57,553 63,111 63,620
Equity in undistributed net income of subsidiary 74,158 81,751 84,630
---------- -------- --------
Income before income taxes 131,711 144,862 148,250
Income tax benefit 157 137 134
---------- -------- --------
Net income $ 131,868 $144,999 $148,384
========== ======== ========
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Statements of Cash Flows
Year ended September 30, 2004 2003 2002
- ------------------------ ---- ---- ----
(In thousands)
Cash Flows From Operating Activities
Net income $131,868 $144,999 $ 148,384
Adjustments to reconcile net income to net
cash provided by operating activities
Equity in undistributed net income of subsidiary (74,158) (81,751) (84,630)
Decrease (increase) in dividend receivable --- 2,000 (1,875)
Increase (decrease) in other liabilities 333 (417) 920
-------- -------- ---------
Net cash provided by operating activities 58,043 64,831 62,799
Cash Flows From Financing Activities
Issuance of common stock through stock option plan 4,265 5,944 3,744
Proceeds from Employee Stock Ownership Plan 4,695 1,522 1,618
Treasury stock purchased (1,939) (10,034) (10,224)
Dividends (64,696) (60,004) (57,383)
-------- -------- ---------
Net cash used by financing activities (57,675) (62,572) (62,245)
-------- -------- ---------
Increase in cash 368 2,259 554
Cash at beginning of year 4,527 2,268 1,714
-------- -------- ---------
Cash at end of year $ 4,895 $ 4,527 $ 2,268
======== ======== =========
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, 2004 Quarter Quarter Quarter Quarter
- ----------------------------- ------- ------- ------- -------
(In thousands, except per share data)
Interest income $ 102,682 $ 102,682 $ 103,210 $ 105,198
Interest expense 44,056 43,406 41,040 41,251
--------- --------- --------- ---------
Net interest income 58,626 59,276 62,170 63,947
Provision for loan losses --- --- (231) ---
Other operating income 3,230 2,449 2,728 (2,681)
Other operating expense 11,160 11,482 11,027 12,595
--------- --------- --------- ---------
Income before income taxes 50,696 50,243 54,102 48,671
Income taxes 17,873 17,723 19,070 17,178
--------- --------- --------- ---------
Net income $ 32,823 $ 32,520 $ 35,032 $ 31,493
========= ========= ========= =========
Basic earnings per share $ .42 $ .41 $ .45 $ .40
Diluted earnings per share .41 .41 .44 .40
Cash dividends per share .20 .20 .21 .21
Return on average assets 1.74% 1.73% 1.91% 1.73%
First Second Third Fourth
Year ended September 30, 2003 Quarter Quarter Quarter Quarter
- ----------------------------- ------- ------- ------- -------
(In thousands, except per share data)
Interest income $122,034 $114,145 $110,594 $104,262
Interest expense 53,703 49,565 46,917 44,699
-------- -------- -------- --------
Net interest income 68,331 64,580 63,677 59,563
Provision for loan losses 1,250 150 100 ---
Other operating income 2,267 5,888 3,671 4,744
Other operating expense 12,612 12,823 11,418 10,646
-------- -------- -------- --------
Income before income taxes 56,736 57,495 55,830 53,661
Income taxes 20,001 20,269 19,539 18,914
-------- -------- -------- --------
Net income $ 36,735 $ 37,226 $ 36,291 $ 34,747
======== ======== ======== ========
Basic earnings per share $ .48 $ .48 $ .47 $ .45
Diluted earnings per share .48 .48 .47 .45
Cash dividends per share .19 .19 .20 .20
Return on average assets 1.99% 2.03% 2.00% 1.90%
33
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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,
2004 and 2003, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended September 30, 2004. 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 the standards of the Public Company
Accounting Oversight Board (United States). 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, 2004 and 2003, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 2004, in conformity with accounting principles generally accepted
in the United States of America.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
Deloitte & Touche LLP
Seattle, Washington
November 18, 2004
34
GENERAL CORPORATE AND
STOCKHOLDERS' INFORMATION
Corporate 425 Pike Street
Headquarters Seattle, Washington 98101
(206) 624-7930
Independent Deloitte & Touche LLP
Auditors Seattle, Washington
Transfer Agent, Stockholder inquiries regarding transfer
Registrar and requirements, cash or stock dividends, lost
Dividend certificates, consolidating records, correcting
Disbursing a name or changing an address should be
Agent directed to the transfer agent:
American Stock Transfer & Trust Company
59 Maiden Lane
Plaza Level
New York, NY 10038
Telephone: 1-800-937-5449
www.amstock.com
Annual Meeting The annual meeting of stockholders will be
held on January 19, 2005, at 2 p.m. at the
Westin Hotel, 1900 Fifth Avenue,
Seattle, Washington
Form 10-K This report and all SEC filings are available through the
Company's web site: www.washingtonfederal.com
Stock Information Washington Federal, Inc. is traded on the NASDAQ Stock
Market. The common stock symbol is WFSL. At September 30,
2004, there were approximately 2,522 stockholders of
record.
Stock Prices
Quarter Ended High Low Dividends
- ------------- ---- --- ---------
December 31, 2002 $20.93 $17.07 $0.19
March 31, 2003 21.37 19.01 0.19
June 30, 2003 21.75 19.15 0.20
September 30, 2003 24.01 21.08 0.20
December 31, 2003 26.29 23.25 0.20
March 31, 2004 26.36 24.24 0.20
June 30, 2004 25.45 22.26 0.21
September 30, 2004 25.99 23.41 0.21
All prices shown have been
adjusted for stock splits.
Largest Market Makers:
McAdams Wright Ragen, Inc.
National Stock Exchange
Archipelago Exchange
Goldman, Sachs & Co.
Boston Stock Exchange
Keefe, Bruyette & Woods, Inc.
Citigroup Global Markets, Inc.
Knight Equity Markets, L.P.
Lehman Brothers, Inc.
Schwab Capital Markets
B-Trade Services, L.L.C.
The Brut ECN, L.L.C.
Merrill Lynch, Pierce, Fenner & Smith, Inc.
Morgan Stanley & Co., Inc.
Alternate Display Facility
35
DIRECTORS, OFFICERS AND OFFICES
CORPORATE HEADQUARTERS
425 Pike Street
Seattle, WA 98101
(206) 624-7930
BOARD OF DIRECTORS
GUY C. PINKERTON
Chairman
ROY M. WHITEHEAD
Vice Chairman, President and Chief Executive Officer
DEREK L. CHINN
Former President and Chief Executive Officer,
United Savings and Loan Bank
JOHN F. CLEARMAN
Former Chief Financial Officer,
Milliman USA, Inc.
H. DENNIS HALVORSON
Former Chief Executive Officer, United Bank
W. ALDEN HARRIS
Former Executive
Vice President
ANNA C. JOHNSON
Senior Partner
Scan East West Travel
THOMAS F. KENNEY
Vice President Finance
Haggen, Inc.
CHARLES R. RICHMOND
Former Executive
Vice President
DIRECTORS EMERITI
E.W. MERSEREAU, JR.
RICHARD C. REED
KERMIT O. HANSON
36
EXECUTIVE MANAGEMENT COMMITTEE
BRENT J. BEARDALL
Senior Vice President
and Chief Financial Officer
LINDA S. BROWER
Executive Vice President
EDWIN C. HEDLUND
Executive Vice President and Secretary
JACK B. JACOBSON
Executive Vice President
and Chief Lending Officer
ROY M. WHITEHEAD
Vice Chairman, President and
Chief Executive Officer
DEPARTMENT MANAGERS
Accounting
CHAD J. LEONARD
Controller
Appraisal
HEATHER J. ST. CLAIR
Retail Underwriting
MICHAEL R. BUSH
Vice President
Credit Administration
JAMES E. CADY
Senior Vice President
DALE R. SULLIVAN
Vice President
Corporate Real Estate and Taxes
KEITH D. TAYLOR
Senior Vice President
and Treasurer
Data Processing
TERRY O. PERMENTER
Senior Vice President
Deposit Operations
BEN A. WHITMARSH
Senior Vice President
Internal Audit
BARBARA A. MURPHY
Vice President
Legal/Special Credits
PAUL I. TYLER
Vice President and Counsel
37
Loan Operations
LEANN H. BURKE
Assistant Vice President
Loan Servicing
LARRY L. PLUMB
Senior Vice President
Marketing and Investor Relations
CATHY E. COOPER
Vice President
Multi-Family Lending
J. TIMOTHY GRANT
Senior Vice President
Permanent Loan Production
JOHN L. WUNDERLICH
Vice President
Wholesale Underwriter
COLLEEN E. WELLS
Vice President
SUBSIDIARIES
First Insurance Agency, Inc.
1501 Riverside Drive
Mount Vernon, WA 98273
1-800-562-2555
DUANE E. HENSON
SOUTH SOUND
WASHINGTON
18 Office Locations
Division Manager
RONDA F. TOMLINSON
Senior Vice President
9919 Bridgeport Way S.W.
Lakewood, WA 98499
MIDSOUND
WASHINGTON
16 Office Locations
Division Manager
E. CRAIG WILSON
Senior Vice President
5809 196th S.W.
Lynnwood, WA 98036
NORTHERN WASHINGTON
9 Office Locations
Division Manager
DOUGLAS A. ROWELL
Senior Vice President
1501 Riverside Drive
Mount Vernon, WA 98273
38
WESTERN IDAHO
12 Office Locations
Division Manager
ROBERT P. LINK
Senior Vice President
1001 W. Idaho St.
Boise, ID 83701
EASTERN IDAHO
4 Office Locations
Division Manager
LARRY L. WADSWORTH
Senior Vice President
500 North Capital
Idaho Falls, ID 83402
OREGON
26 Office Locations
Division Manager
PEGGY L. HOBIN
Senior Vice President
14990 SW Bangy Rd.
Lake Oswego, OR 97035
UTAH
10 Office Locations
Division Manager
MARLISE G. FISHER
Vice President
505 East 200 South
Salt Lake City, UT 84102
PHOENIX ARIZONA
12 Office Locations
Division Manager
WENDY L. YATES
Vice President
2196 E. Camelback Road, Suite 100
Phoenix, AZ 85016
TUCSON ARIZONA
8 Office Locations
Division Manager
GEORGIA E. VELARDE
Vice President
5151 E. Broadway Blvd., Suite 105
Tucson, AZ 85711
NEVADA
2 Office Locations
Division Manager
PAMELA K. CALLAHAN
Vice President
9340 Sun City Blvd. #103
Las Vegas, NV 89134
39
TEXAS
2 Office Locations
Division Manager
VAUGHN C. PEARSON
Senior Vice President
5900 Chapel Hill Blvd.
Plano, TX 75093
COLORADO
1 Loan Production Office
SCOTT A. BRKOVICH
384 Inverness Drive South, Suite 105
Englewood, CO 80112
40