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FORM 10-K/A
Securities and Exchange Commission
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1997.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from .............. to ..............
Commission File Number: 0-25454
Washington Federal, Inc.
(Exact name of registrant as specified in its charter)
United States 91-1661606
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
425 Pike Street, Seattle, Washington 98101
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 624-7930
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
N/A N/A
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $1.00 par value per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of December 8, 1997, the aggregate market value of the 46,101,321 shares of
Common Stock of the Registrant issued and outstanding on such date, excluding
1,424,969 shares held by all directors and executive officers of the Registrant
as a group, was $1,504,056,000. This figure is based on the closing sale price
of $32.625 per share of the Registrant's Common Stock on December 8, 1997, as
reported in The Wall Street Journal on December 9, 1997.
Number of shares of Common Stock outstanding as of December 8, 1997: 47,526,290
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents incorporated by reference and the
Part of Form 10-K into which the document is incorporated:
(1) Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended September 30, 1997 are incorporated into Part II, Items 5-8 of this
Form 10-K.
(2) Portions of the Registrant's definitive proxy statement for its 1997 Annual
Meeting of Stockholders are incorporated into Part III, Items 10-13 of this Form
10-K.
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PART I.
ITEM 1. BUSINESS
GENERAL
Washington Federal, Inc. (the "Company"), formed in November 1994, is a
Washington corporation headquartered in Seattle, Washington. The Company is a
non-diversified unitary savings and loan holding company within the meaning of
the Home Owners' Loan Act ("HOLA") which conducts its operations through a
federally insured savings and loan association subsidiary, Washington Federal
Savings and Loan Association ("Washington Federal" or the "Association"). As
such, the Company is registered as a holding company with the Office of Thrift
Supervision ("OTS") and is subject to OTS regulation, examination, supervision
and reporting requirements.
The Association, doing business as Washington Federal Savings, is a
federally-chartered savings and loan association that began operations in
Washington as a state-chartered mutual association in 1917. In 1935, the
Association converted to a federal charter and became a member of the Federal
Home Loan Bank ("FHLB") System. On November 17, 1982, Washington Federal
converted from a federal mutual to a federal capital stock association.
The business of Washington Federal consists primarily of attracting
savings deposits from the general public and investing these funds in loans
secured by first mortgage liens on single-family dwellings, including loans for
the construction of such dwellings, and to a significantly lesser extent, on
commercial property and multi-family dwellings. It also originates other types
of loans for its portfolio and invests in certain United States Government and
agency obligations and other investments permitted by applicable laws and
regulations. Washington Federal has 104 offices located in Washington, Oregon,
Idaho, Arizona and Utah, all of which are full service branches. Through
subsidiaries, the Association is engaged in real estate development and
insurance brokerage activities.
The principal sources of funds for the Association's activities are
retained earnings, loan repayments (including prepayments), net savings inflows,
sales of loans, loan participations and other assets, and deposits and
borrowings. Washington Federal's principal sources of revenue are interest on
loans, interest and dividends on investments and gains on sale of investments
and real estate. Its principal expenses are interest paid on savings, general
and administrative expenses, interest on borrowings and income taxes.
The Company's growth has been generated both internally and as a result
of eleven mergers and three assumptions of deposits. The most recent acquisition
was completed in November 1996, when the Company purchased Metropolitan Bancorp,
Seattle, Washington ("Metropolitan"). For additional information in this regard,
see Note B to the Consolidated Financial Statements included in Item 14 hereof.
The Association is subject to extensive regulation, supervision and
examination by the OTS, as its chartering authority and primary federal
regulator, and by the Federal Deposit
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Insurance Corporation ("FDIC"), which insures its deposits up to applicable
limits. Such regulation and supervision establishes a comprehensive framework of
activities in which an association may engage and is intended primarily for the
protection of the Savings Association Insurance Fund ("SAIF") administered by
the FDIC and depositors. The regulatory structure also gives the regulatory
authorities extensive discretion in connection with their supervisory and
enforcement activities. Any change in such regulation, whether by the OTS, the
FDIC or the U.S. Congress, could have a significant impact on the Association
and its operations. See "Regulation."
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AVERAGE STATEMENTS OF FINANCIAL CONDITION
Year Ended September 30,
------------------------------------------------------------------
1995 1996
------------------------------- -------------------------------
Average Average Average Average
Balance Interest Rate Balance Interest Rate
---------- -------- ------- ---------- -------- -------
(Dollars in Thousands)
ASSETS
Loans (1) $2,635,724 $238,086 9.03% $3,442,290 $305,372 8.87%
Mortgage-backed securities 1,109,687 84,125 7.58 966,658 74,126 7.67
Investment securities 245,760 18,101 7.37 336,722 20,817 6.18
FHLB stock 54,701 3,454 6.31 50,795 3,896 7.67
---------- -------- ---- ---------- -------- ----
Total interest-earning assets 4,045,872 343,766 8.50 4,796,465 404,211 8.43
Other assets 143,157 114,126
---------- ----------
Total assets $4,189,029 $4,910,591
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Checking accounts $ 72,323 1,735 2.40 $ 72,376 1,734 2.40
Passbook and statement accounts 210,286 7,036 3.35 178,616 6,267 3.51
Insured money market accounts 244,132 10,549 4.32 313,746 13,137 4.19
Certificate accounts (time deposits) 1,720,238 93,104 5.41 1,847,561 105,285 5.70
Repurchase agreements with customers 54,617 2,924 5.35 66,048 3,481 5.27
FHLB advances 317,590 18,714 5.89 862,966 48,183 5.58
Securities sold under
agreements to repurchase 863,379 51,028 5.91 816,857 47,905 5.86
Federal funds purchased 46,160 3,163 6.85 50,810 2,753 5.42
---------- -------- ---- ---------- -------- ----
Total interest-bearing liabilities 3,528,725 188,253 5.33 4,208,980 228,745 5.44
Other liabilities 98,657 123,135
---------- ----------
Total liabilities 3,627,382 4,332,115
Stockholders' equity 561,647 578,476
---------- ----------
Total liabilities
and stockholders' equity $4,189,029 $4,910,591
========== -------- ---- ========== -------- ----
Net interest income/Interest rate spread $155,513 3.17% $175,466 2.99%
======== ==== ======== ====
Net interest margin (2) 3.84% 3.66%
==== ====
Year Ended September 30,
------------------------------------
1997
------------------------------------
Average Average
Balance Interest Rate
---------- ---------- -------
(Dollars in Thousands)
Loans (1) $4,091,571 $ 357,571 8.74%
Mortgage-backed securities 1,003,077 74,667 7.44
Investment securities 305,183 20,140 6.60
FHLB stock 84,888 6,704 7.90
---------- ---------- ----
Total interest-earning assets 5,484,719 459,007 8.37
Other assets 161,324
----------
Total assets $5,646,043
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Checking accounts 83,991 2,006 2.39
Passbook and statement accounts 183,048 6,371 3.48
Insured money market accounts 374,581 15,391 4.11
Certificate accounts (time deposits) 2,117,792 115,857 5.47
Repurchase agreements with customers 60,671 3,059 5.04
FHLB advances 1,315,353 73,393 5.58
Securities sold under
agreements to repurchase 569,203 30,944 5.44
Federal funds purchased 187,082 10,426 5.57
---------- ---------- ----
Total interest-bearing liabilities 4,891,721 257,447 5.26
Other liabilities 106,513
----------
Total liabilities 4,998,234
Stockholders' equity 647,809
----------
Total liabilities
and stockholders' equity $5,646,043
========== ---------- ----
Net interest income/Interest rate spread $ 201,560 3.11%
========== ====
Net interest margin (2) 3.67%
====
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(1) The average balance of loans includes non-accruing loans, interest on which
is recognized on a cash basis.
(2) Net interest income divided by average interest-earning assets.
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LENDING ACTIVITIES
GENERAL. The Company's net portfolio of loans and mortgage-backed
securities totaled $5.1 billion at September 30, 1997, representing
approximately 90% of its total assets. In recent years the Company has
concentrated its lending activities on the origination of conventional loans,
which are loans that are neither insured nor guaranteed by agencies of the
United States Government. The Company's investment in mortgage-backed securities
issued or guaranteed by the Government National Mortgage Association ("GNMA"),
the Federal National Mortgage Association ("FNMA") and the Federal Home Loan
Mortgage Corporation ("FHLMC") and certain privately insured mortgage-backed
securities amounted to $947 million (net of discounts and premiums) at September
30, 1997 and is deemed to be part of the Company's loan portfolio.
Washington Federal has historically concentrated its lending activity on
the origination of long-term, fixed-rate single-family first mortgage loans,
single-family construction loans and land development loans. Although mortgage
loans may be written with adjustable interest rates, the Association does not
emphasize adjustable-rate loans.
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The following table sets forth the composition of the Company's gross
loan and mortgage-backed securities portfolio, by loan type and security type,
as of September 30 for the years indicated.
1993 1994 1995
---------------------- --------------------- ---------------------
Amount Percent Amount Percent Amount Percent
---------- ------- ---------- ------- ---------- -------
(Dollars in Thousands)
Loans by type of loan
Real estate:
Conventional:
Permanent $1,881,376 63.0% $2,089,769 57.7% $2,635,669 60.1%
Land development 126,640 4.2 132,487 3.7 167,028 3.8
Construction(1) 312,097 10.4 359,812 9.9 443,723 10.1
Insured or guaranteed:
FHA 26,731 .9 22,279 .6 20,479 .4
VA 18,971 .6 18,511 .5 16,434 .4
Mortgage-backed
securities(residential) 615,375 20.6 995,107 27.4 1,095,861 25.0
Savings account loans 2,782 .1 2,790 .1 2,344 .1
Consumer 6,071 .2 3,796 .1 2,463 .1
---------- ----- ---------- ----- ---------- -----
Total(2) $2,990,043 100.0% $3,624,551 100.0% $4,384,001 100.0%
========== ===== ========== ===== ========== =====
Loans by type of security
Residential:
Single-family(3) $2,223,171 74.3% $2,499,458 69.0% $3,168,844 72.2%
Other dwelling units 49,597 1.7 46,260 1.3 54,407 1.2
Income property 93,047 3.1 77,140 2.1 60,082 1.4
Mortgage-backed
securities(residential) 615,375 20.6 995,107 27.4 1,095,861 25.0
Savings account loans 2,782 .1 2,790 .1 2,344 .1
Consumer 6,071 .2 3,796 .1 2,463 .1
---------- ----- ---------- ----- ---------- -----
Total(2) $2,990,043 100.0% $3,624,551 100.0% $4,384,001 100.0%
========== ===== ========== ===== ========== =====
1996 1997
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Amount Percent Amount Percent
---------- ------- ---------- -------
(Dollars in Thousands)
Loans by type of loan
Real estate:
Conventional:
Permanent $3,241,789 66.6% $3,719,185 68.9%
Land development 172,146 3.5 158,706 2.9
Construction(1) 548,302 11.2 542,394 10.0
Insured or guaranteed:
FHA 18,123 .4 26,641 .5
VA 18,169 .4 17,797 .3
Mortgage-backed
securities(residential) 865,887 17.8 931,456 17.3
Savings account loans 3,576 .1 3,954 .1
Consumer 1,488 - 1,089 -
---------- ----- ---------- -----
Total(2) $4,869,480 100.0% $5,401,222 100.0%
========== ===== ========== =====
Loans by type of security
Residential:
Single-family(3) $3,879,092 79.7% $4,222,566 78.2%
Other dwelling units 74,108 1.5 122,038 2.2
Income property 45,329 .9 120,119 2.2
Mortgage-backed
securities(residential) 865,887 17.8 931,456 17.3
Savings account loans 3,576 .1 3,954 .1
Consumer 1,488 - 1,089 -
---------- ----- ---------- -----
Total(2) $4,869,480 100.0% $5,401,222 100.0%
========== ===== ========== =====
(1) Includes construction loans that have been modified to monthly payment
loans, due in full in approximately one year, in the amount of $16.4
million, $6.1 million, $6.1 million, $15.9 million and $17.8 million at
September 30, 1993, 1994, 1995, 1996 and 1997, respectively.
(2) After netting undisbursed proceeds on loans in process, deferred fees,
discounts on loans and allowances for possible losses against the
applicable loan amounts, the Association's net loan portfolio at September
30, 1993, 1994, 1995, 1996 and 1997 amounted to $2.78 billion, $3.40
billion, $4.11 billion, $4.60 billion and $5.1 billion, respectively.
(3) Includes condominium units (which are deemed to be single-family residences
regardless of the number of units in the structure in which they are
located), as well as land and construction loans for single family
residences.
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The following table summarizes the scheduled contractual gross loan
maturities for the Association's total loan and mortgage-backed securities
portfolios due for the periods indicated as of September 30, 1997. Amounts are
presented prior to deduction of discounts, premiums, loans in process, deferred
loan origination fees and allowance for loan losses. Adjustable rate loans are
shown in the period in which loan principal payments are contractually due.
Maturity Distribution
----------------------------------
Balance Outstanding at Less than 1 to 5 After 5
September 30, 1997 1 year years years
---------------------- --------- -------- ----------
(In Thousands)
One- to four-family real estate loans $3,521,466 $ 16,925 $ 77,294 $3,427,247
GNMA, FHLMC, FNMA and other
mortgage-backed securities 931,456 -- 4,989 926,467
Construction and land development
loans 701,100 645,818 18,866 36,416
Income property loans 242,157 50,537 45,866 145,754
Savings account loans 3,954 3,726 45 183
Consumer loans 1,089 515 176 398
---------- -------- -------- ----------
$5,401,222 $717,521 $147,236 $4,536,465
========== ======== ======== ==========
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Loans maturing after one year:
Fixed interest rates $4,298,518
Floating or adjustable interest rates 385,183
----------
Total $4,683,701
==========
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The original contractual loan payment period for residential loans
originated by the Association normally ranges from 15 to 30 years. Experience
during recent years has indicated that, because of prepayments in connection
with refinancing and sales of property, residential loans remain outstanding an
average of less than ten years.
LENDING PROGRAMS AND POLICIES. The Association specializes in
residential real estate lending and has no present plans to expand its
operations into consumer or commercial business loans. The Association offers
"balloon" payment loans, which are amortized on a 20 or 30 year basis but which
have a maturity date for the principal balance of a much shorter period. The
Association also provides land acquisition and development loans ("land
development loans") and construction loans for single-family residences. The
interest rate on these loans generally adjusts every 90 days in accordance with
a designated index. Land development and construction loans amounted to $701
million or 13% of the Association's gross loan portfolio (including
mortgage-backed securities) at September 30, 1997. The Association offers a
multi-family (five or more dwelling units) lending program with strict
underwriting guidelines, including a $1 million limit on any one loan.
Many of the associations acquired by Washington Federal offered a
variety of lending products, including commercial real estate and non-real
estate secured loans, consumer secured loans and non-secured lines of credit.
All commercial, consumer and line of credit lending has been discontinued and
lending has been redirected toward the traditional Association lending practices
of single-family residential loans. The loans acquired, other than single-family
residential real estate loans, are being serviced and payoffs are encouraged.
As a result of activity over the past three decades, the Association
believes that it is a leading construction lender for single-family residences
in the Seattle metropolitan area. Because of this history, the Association has
developed a staff with in-depth land development and construction experience and
working relationships with a group of builders which have been selected based on
their operating histories and financial stability.
Construction lending is generally considered to involve a higher level
of risk than single-family residential lending due to the concentration of
principal in a limited number of loans and borrowers and the effects of general
economic conditions on real estate developers and managers. Moreover, a
construction loan can involve additional risks because of the inherent
difficulty in estimating both a property's value at completion of the project
and the estimated cost (including interest) of the project. The nature of these
loans also is such that they are generally more difficult to evaluate and
monitor.
The Association continues to originate medium and long-term, permanent
fixed-rate loans, but in most instances (see below) only under terms, conditions
and documentation which permit sale in the secondary market. Moreover, since
1973 it has been the Association's general policy to include in the
documentation evidencing its conventional mortgage loans the so-called "due on
sale clause," which facilitates adjustment of interest rates on such loans when
the property securing the loan is sold or transferred. At September 30, 1997,
$4.3 billion or 79% of the
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Association's loan portfolio was represented by medium and long-term, fixed-rate
loans secured by single-family residences (including mortgage-backed
securities).
The Association offers a 99% loan-to-value ratio conventional loan
program for first time home buyers. The high-ratio conventional lending program
presents greater risk to the Association. To mitigate the risk, the program has
stringent underwriting and property requirements that include home
ownership/money management counseling and property condition inspections. A loss
reserve of 2% of the loan amount is established for each loan granted. The
Association is authorized by its Board to originate $100 million of loans under
this program. As of September 30, 1997, loans under this program amounted to
$71.4 million.
All of the Association's mortgage lending is subject to its written,
nondiscriminatory underwriting standards, loan origination procedures and
lending policies prescribed by the Association's Board of Directors. Property
valuations are required on all real estate loans and are prepared by independent
appraisers approved by the Association's Board of Directors and the appraisals
are reviewed by the Association's appraisal staff. Detailed loan applications
are obtained to determine the borrower's ability to repay, and the more
significant items on these applications are verified through the use of credit
reports, financial statements and written confirmations. Depending on the size
of the loan involved, a varying number of senior officers of the Association
must approve the application before the loan can be granted.
Federal regulations limit the amount of a real estate loan made by a
federally-chartered savings institution to a specified percentage of the value
of the property securing the loan, as determined by an appraisal at the time the
loan is originated (referred to as the "loan-to-value ratio"). The regulation
provides that at the time of origination a real estate loan may not exceed 100%
of the appraised value of the security property. Maximum loan-to-value ratios
for each type of real estate loan made by an institution are now established by
the institution's board of directors. In addition, the board of directors must
approve each real estate loan (other than a home loan) with a loan-to-value
ratio in excess of 80%.
A general reserve is established for all loans with loan-to-value ratios
exceeding 80% that are not insured by private mortgage insurance by placing 1%
of the new loan principal balance into such reserve when the loan is closed.
This total reserve balance at September 30, 1997 amounted to $5.2 million.
The Association's residential construction loans and land acquisition
and development loans are of a short-term nature and are generally made for 80%
or less of the appraised value of the property upon completion for residential
construction loans and 75% or less for land acquisition and development loans.
Funds are disbursed periodically at various stages of completion as authorized
by the Association's personnel.
It is the Association's policy to obtain title insurance insuring that
the Association has a valid first lien on the mortgaged real estate. Borrowers
must also obtain hazard insurance prior to closing and, when required by the
Department of Housing and Urban Development, flood
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insurance. Borrowers may be required to advance funds on a monthly basis
together with each payment of principal and interest to a mortgage escrow
account from which the Association makes disbursements for items such as real
estate taxes, hazard insurance premiums and private mortgage insurance premiums
as they fall due.
ORIGINATION, PURCHASE AND SALE OF LOANS. The Association has general
authority to lend anywhere in the United States. The Association's primary
lending area, however, is western Washington, western Oregon, southern Idaho,
southern Arizona and northern Utah.
Loan originations come from a number of sources. Residential loan
originations result from referrals from real estate brokers, walk-in customers,
purchasers of property in connection with builder projects financed by the
Association, purchasers of property referred through mortgage brokers and from
refinancing for existing customers. Construction loan originations are obtained
primarily by direct solicitation of builders and continued business from
builders who have previously borrowed from the Association.
At September 30, 1997, the Association was servicing approximately
$119.9 million of loans for others. Sales are made on a yield basis with the
difference between the yield to the purchaser and the amount paid by the
borrower constituting servicing income to the Association. The sale of loans and
loan participations is subject to federal regulations, which, among other
things, until recently required that sales be made on a non-recourse basis.
The Association also purchases mortgage-backed securities when lending
rates and mortgage volume for new loan originations in its market area do not
fulfill its needs. Mortgage-backed securities accounted for most of the
Association's loan purchases in recent years. Mortgage-backed securities are
more liquid than individual mortgage loans and may be used to collateralize
borrowings of the Association.
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The table below shows total loan origination, purchase, sale and
repayment activities of the Association on a consolidated basis for the periods
indicated.
Year Ended September 30,
---------------------------------------------------------------------------
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
(In Thousands)
Loans originated(1):
Construction $ 291,777 $ 370,845 $ 341,001 $ 428,317 $ 407,135
Land 66,546 74,508 97,990 92,496 77,270
Loans on existing property 464,195 540,561 758,455 972,601 556,063
Loans refinanced 97,387 76,518 27,468 62,854 48,240
----------- ----------- ----------- ----------- -----------
Total loans originated 919,905 1,062,432 1,224,914 1,556,268 1,088,708
----------- ----------- ----------- ----------- -----------
Loans and mortgage backed securities purchased:
From acquisitions of
associations 316,095 -- 27,759 -- 627,816
Other 261,056 620,026 216,843 60,888 11,310
----------- ----------- ----------- ----------- -----------
577,151 620,026 244,602 60,888 639,126
----------- ----------- ----------- ----------- -----------
Loans and mortgage-backed
securities sold (27,239) (18,702) (34,156) (134,275) (119,851)
----------- ----------- ----------- ----------- -----------
Loan and mortgage-backed
securities principal
repayments (1,074,562) (1,057,659) (683,383) (1,016,049) (1,127,923)
----------- ----------- ----------- ----------- -----------
Net change in loans in
process, discounts, fees, etc (20,855) 18,545 (37,679) 7,908 68,224
----------- ----------- ----------- ----------- -----------
Net loan activity increase
$ 374,400 $ 624,642 $ 714,298 $ 474,740 $ 548,284
=========== =========== =========== =========== ===========
(1) Includes undisbursed loans in process and does not include savings account
loans, which were not material during the periods indicated.
INTEREST RATES, LOAN FEES AND SERVICE CHARGES. Interest rates charged by
the Association on mortgage loans are primarily determined by the level of
competitive loan rates offered in its lending areas and in the secondary market.
Mortgage loan rates reflect factors such as interest rates generally, the supply
of money available to the savings and loan industry and the demand for such
loans. These factors are in turn affected by general economic conditions, the
regulatory programs and policies of federal and state agencies, changes in tax
laws and governmental budgetary programs.
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The Association receives loan origination fees for originating loans and
servicing fees for servicing loans sold by it to others. The Association also
receives commitment fees for making commitments to originate construction,
commercial and multi-family residential loans, as well as various fees and
charges related to existing loans, which include prepayment charges, late
charges and assumption fees.
In making one- to-four family home mortgage loans, the Association does
not normally charge a commitment fee. As part of the loan application, the
borrower pays the Association for its out-of-pocket costs in reviewing the
application, such as the appraisal fee, whether or not the borrower closes the
loan. The interest rate charged is normally the prevailing rate at the time the
loan application is approved. In the case of larger construction loans, the
Association normally charges a 1% commitment fee, which may be included in the
loan origination charge when the loan is made. Commitment fees and other terms
of commercial and multi-family residential loans are individually negotiated.
NON-PERFORMING ASSETS. When a borrower fails to make a required payment
on a loan, the Association attempts to cause the deficiency to be cured by
contacting the borrower. Contacts are made after a payment is 30 days past due.
In most cases, deficiencies are cured promptly. If the delinquency is not cured
within 90 days, the Association causes the trustee on the deed of trust to
institute appropriate action to foreclose the property. If foreclosed, the
property will be sold at a public sale and may be purchased by the Association.
There are circumstances under which the Association may choose to foreclose a
deed of trust as mortgagee and when this procedure is followed certain
redemption rights are involved.
Loans are placed on non-accrual status when, in the judgment of
management, the probability of collection of interest is deemed to be
insufficient to warrant further accrual. When a loan is placed on non-accrual
status, previously accrued but unpaid interest is deducted from interest income.
The Association does not accrue interest on loans past due 90 days or more. See
Note A to the Consolidated Financial Statements included in Item 14 hereof.
Real estate acquired by foreclosure or deed-in-lieu thereof ("REO") is
classified as real estate held for sale until it is sold. When property is
acquired, it is recorded at the lower of carrying or fair value at the date of
acquisition and any writedown resulting therefrom is charged to the allowance
for loan losses. Interest accrual ceases on the date of acquisition and all
costs incurred in maintaining the property from that date forward are expensed.
Costs incurred for the improvement or development of such property are
capitalized. See Note A to the Consolidated Financial Statements included in
Item 14 hereof.
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The following table sets forth information regarding restructured and
non-accrual loans and REO held by the Association at the dates indicated.
September 30,
-------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(Dollars in Thousands)
Restructured loans (1) $ 7,658 $11,254 $10,103 $24,046 $ 8,613
Non-accrual loans:
Single-family residential 4,498 4,215 2,879 5,913 9,571
Construction and land 13,407 5,484 9,515 7,779 4,629
Commercial real estate 1,718 1,223 76 482 586
Consumer 93 105 -- 4 3
------- ------- ------- ------- -------
Total non-accrual loans (2) 19,716 11,027 12,470 14,178 14,789
Total REO (3) 1,936 2,316 19,735 20,417 19,339
------- ------- ------- ------- -------
Total non-performing assets $29,310 $24,597 $42,308 $58,641 $42,741
======= ======= ======= ======= =======
Total non-performing assets as
a percent of total assets .93% .64% .92% 1.15% .75%
======= ======= ======= ======= =======
- -----------------------------
(1) Performing in accordance with restructured terms.
(2) The Association recognized interest income on non-accrual loans of
approximately $206,000 in 1997. Had these loans performed according to their
original contract terms, the Association would have recognized interest income
of approximately $750,000 in 1997.
In addition to the non-accrual loans reflected in the above table, at
September 30, 1997, the Association had $6.5 million of loans which were less
than 90 days or more delinquent but which it had classified as substandard for
one or more reasons. If these loans were deemed non-performing, the
Association's ratio of total non-performing assets as a percent of total assets
would have been .86% at September 30, 1997. For discussion of the Company's
policy for placing loans on nonaccrual status, see Note A to the Consolidated
Financial Statements included in Item 14 hereof.
(3) Total REO includes real estate held for sale acquired in settlement of
loans or acquired from purchased institutions in settlement of loans. See Note I
to the Consolidated Financial Statements included in Item 14 hereof.
14
14
The following table analyzes the Company's allowance for loan losses for
the years indicated.
September 30,
-------------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(Dollars in Thousands)
Beginning Balance $16,896 $14,674 $11,720 $11,651 $15,182
Charge-offs:
Real estate:
Permanent 43 8 450 146 131
Construction 1,071 977 164 179 592
Land 29 184 163 90 413
Income property 6,860 2,604 6,536 405 4,796
Other 3 4 17 -- --
------- ------- ------- ------- -------
8,006 3,777 7,330 820 5,932
------- ------- ------- ------- -------
Recoveries:
Real estate:
Permanent 47 127 10 10 14
Construction 168 50 50 -- 8
Land 356 26 21 -- --
Income property 269 219 654 513 3,340
Other 134 -- -- -- --
------- ------- ------- ------- -------
974 422 735 523 3,362
------- ------- ------- ------- -------
Net Charge-offs 7,032 3,355 6,595 297 2,570
Acquisitions 2,079 -- 281 -- 11,198
Provisions for loan losses 2,731 401 6,245 3,828 813
------- ------- ------- ------- -------
Ending balance $14,674 $11,720 $11,651 $15,182 $24,623
======= ======= ======= ======= =======
Ratio of net charge-offs to
average loans outstanding .35% .15% .25% .01% .06%
======= ======= ======= ======= =======
- ---------------------------
The following table sets forth the allocation of the Company's allowance
for loan losses at the dates indicated.
September 30,
---------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(In Thousands)
Real estate:
Permanent single-family $ 1,323 $ 1,537 $ 3,031 $ 5,239 $ 5,755
Construction 230 120 5 2,945 3,053
Land 30 255 405 2,525 1,763
Income Property 4,575 2,750 950 1,843 7,081
Other 71 2 -- -- --
Unallocated 8,445 7,056 7,260 2,630 6,971
------- ------- ------- ------- -------
$14,674 $11,720 $11,651 $15,182 $24,623
======= ======= ======= ======= =======
As part of the process of determining the adequacy of the allowance for
loan losses, management reviews the loan portfolio for specific weaknesses. A
portion of the allowance is then allocated to reflect the loss exposure.
Residential real estate loans are not individually analyzed for impairment and
loss exposure because of the significant number of loans, their relatively small
balances and historically low level of losses. Residential construction,
commercial real estate and commercial business loans were evaluated individually
for impairment, which resulted in an allocation of $11.9 million of the
allowance for loan loss at year-end 1997, compared with an allocation of $7.3
million a year earlier.
15
15
Unallocated reserves are established for loss exposure that may exist in
the remainder of the loan portfolio but has yet to be identified. In determining
the adequacy of unallocated reserves, management considers changes in the size
and composition of the loan portfolio, actual historical loan loss experience,
and current and anticipated economic conditions.
REAL ESTATE HELD FOR SALE. As one of the Association's activities, a
subsidiary is engaged in the development and sale of real estate. Also, REO
which was acquired in the acquisitions of insolvent associations has been
recorded as real estate held for sale.
The business of real estate development involves substantial risks, and
the results of such activities depend upon a number of factors, including
seasonality, the type, location and size of each project, the stage of project
development, general economic conditions and the level of mortgage interest
rates. Consequently, there may be substantial inter-period variations in the
operating results of the Association's real estate development activities.
Moreover, because investing in real estate and real estate development
activities are not permissible activities for national banks, the amount of the
investment in, and loans to, any subsidiary engaged in such activities is
deductible from a savings association's regulatory capital. See "Regulation -
The Association--Regulatory Capital Requirements."
INVESTMENT ACTIVITIES
As a federally-chartered savings institution, Washington Federal is
required to maintain certain liquidity ratios and does so by investing in
securities that qualify as liquid assets under federal regulations. These
include, among other things, certain certificates of deposit, bankers'
acceptances, loans to financial institutions whose deposits are
federally-insured, federal funds and United States Government and agency
obligations.
The following table sets forth the composition of the Company's
investment portfolio on the dates indicated.
September 30,
---------------------------------------------------------------------
1995 1996 1997
--------------------- --------------------- ---------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
--------- -------- --------- -------- --------- --------
(In Thousands)
U.S. Government and agency
obligations $204,528 $211,816 $270,915 $275,538 $258,279 $266,279
State and political subdivisions 44,845 46,197 23,468 24,967 23,471 25,403
-------- -------- -------- -------- -------- --------
$249,373 $258,013 $294,383 $300,505 $281,750 $291,682
======== ======== ======== ======== ======== ========
- -----------------------------
16
16
The investment portfolio at September 30, 1997 categorized by maturity
is as follows:
Amortized Weighted
Cost Average Yield
---------- -------------
(Dollars in Thousands)
Due in less than one year $ 93,911 7.48%
Due after one year through five years 149,554 6.81
Due after five years through ten years 15,187 6.98
Due after ten years 23,098 7.93
---------
$ 281,750
=========
SOURCES OF FUNDS
GENERAL. Savings deposits are an important source of the Association's
funds for use in lending and for other general business purposes. In addition to
savings deposits, Washington Federal derives funds from loan repayments,
advances from the FHLB and other borrowings and, to a lesser extent, from loan
sales. Loan repayments are a relatively stable source of funds while savings
inflows and outflows are significantly influenced by general interest rates and
money market conditions. Borrowings may be used on a short-term basis to
compensate for reductions in normal sources of funds such as savings inflows at
less than projected levels. They may also be used on a longer-term basis to
support expanded activities.
SAVINGS. In recent years, the Association has chosen to rely on term
certificate accounts and other deposit alternatives which have no fixed term and
pay interest rates that are more responsive to market interest rates than
passbook accounts. This greater variety of deposits has allowed the Association
to be more competitive in obtaining funds to more effectively manage its
liabilities.
Certificates with a maturity of one year or less have penalties for
premature withdrawal equal to 90 days of interest. When the maturity is greater
than one year, the penalty is 180 days of interest. For jumbo certificates the
penalty depends on the original term. If the original term is 90 days or less
the penalty is the greater of 30 days interest or all interest earned. If the
original term is 90 days or more the penalty is the greater of 90 days interest
or all interest earned. Early withdrawal penalties during fiscal 1995, 1996 and
1997 amounted to approximately $438,000, $349,000 and $375,000, respectively.
The Association offers a single "performance" checking account. This
account pays interest on balances over $1,000 and is charged a service fee if
balances drop below $1,000.
The Association's deposits are obtained primarily from residents of
Washington, Oregon, Idaho, Arizona and Utah and the Association does not
advertise for deposits outside of these states. At September 30, 1997,
management believed that less than 3% of the Association's deposits were held by
nonresidents of Washington, Oregon, Idaho, Arizona and Utah.
17
17
The following table sets forth certain information relating to the
Association's savings deposits at the dates indicated.
September 30,
---------------------------------------------------------------
1995 1996 1997
------------------- -------------------- ------------------
Amount Rate Amount Rate Amount Rate
----------- ---- ---------- ---- --------- ----
(Dollars in Thousands)
Balance by interest rate:
Checking accounts $ 70,011 3.00 $ 75,781 3.0% $ 88,811 3.00%
Regular savings (passbook)
accounts 187,812 3.50 175,307 3.50 177,843 3.50
Money market deposit accounts 271,582 4.91 342,013 4.04 399,056 4.04
---------- ---------- ----------
529,405 593,101 665,710
---------- ---------- ----------
Fixed-rate certificates:
3.00% - 4.99% 150,754 137,463 13,946
5.00% - 6.99% 1,599,413 1,642,332 2,063,144
7.00% - 8.99% 14,322 1,075 1,544
9.00% and above 1,611 49 7
Jumbo certificates ($100,000
or more):
3.00% - 4.99% 5,091 4,169 3,293
5.00% - 6.99% 70,027 45,696 150,958
7.00% - 8.99% 476 -- 6,769
---------- ---------- ----------
1,841,694 1,830,784 2,239,661
---------- ---------- ----------
$2,371,099 $2,423,885 $2,905,371
========== ========== ==========
The following table sets forth by various interest rate categories the
amounts of certificates of deposit of the Association at September 30, 1997
which mature during the periods indicated.
Amounts at September 30, 1997 Maturing in
------------------------------------------------------------------------------------
1 to 3 4 to 6 7 to 12 13 to 24 25 to 36 37 to 60 After
Months Months Months Months Months Months 60 Months
-------- ---------- -------- -------- -------- -------- ----------
(Dollars in Thousands)
3.00 to 3.99% $ -- $ -- $ -- $ 54 $ 66 $ 110 $ --
4.00 to 4.99% 15,451 912 177 465 4 -- --
5.00 to 5.99% 452,360 621,800 641,106 202,829 10,828 45,714 90
6.00 to 6.99% 17,394 11,776 13,439 189,657 6,650 459 --
7.00 to 7.99% 3,308 304 880 2,579 1,107 73 4
8.00 to 8.99% 36 -- -- 17 6 -- --
9.00% and above -- -- -- 6 -- -- --
-------- ---------- -------- -------- -------- ------- -----
Total $488,549 $634,792 $655,602 $395,607 $18,661 $46,356 $ 94
======= ======= ======= ======= ====== ====== =====
Historically, the majority of certificate holders roll over their
balances into new certificates of the same term at the Association's then
current rate. To ensure a continuity of this trend, the Association expects to
continue to offer market rates of interest. The Association's ability to retain
deposits maturing in negotiated-rate certificate accounts is more difficult to
project. The Association is confident, however, that by competitively pricing
these certificates, balance levels deemed appropriate by management can be
achieved on a continuing basis.
At September 30, 1997, the Association had $161.0 million of
certificates of deposit in amounts of $100,000 or more outstanding, maturing as
follows: $95.0 million within 3 months; $31.6 million over 3 months through 6
months; $25.2 million over 6 months through 12 months; and $9.2 million
thereafter.
18
18
The following table sets forth the customer account activities of the
Association for the periods indicated.
Year Ended September 30,
-----------------------------------------------
1995 1996 1997
----------- ----------- -----------
(In Thousands)
Assumed from acquisitions $ 27,374 $ -- $ 379,975
Branch sale (4,743) -- --
Deposits 2,590,714 2,363,515 3,045,581
Withdrawals 2,565,109 2,458,534 3,070,429
----------- ----------- -----------
Net increase (decrease) in deposits
before interest credited 48,236 (95,019) 355,127
Interest credited 115,348 129,904 142,684
----------- ----------- -----------
Net increase in customer accounts $ 163,584 $ 34,885 $ 497,811
=========== =========== ===========
- -----------------------------
BORROWINGS. The Association obtains advances from the FHLB upon the
security of the capital stock of the FHLB it owns and certain of its home
mortgages, provided certain standards related to credit worthiness have been
met. See "Regulation - Federal Home Loan Bank System." Such advances are made
pursuant to several different credit programs. Each credit program has its own
interest rate and range of maturities, and the FHLB prescribes acceptable uses
to which the advances pursuant to each program may be put as well as limitations
on the size of such advances. Depending on the program, such limitations are
based either on a fixed percentage of assets or the Association's credit
worthiness. The FHLB is required to review its credit limitations and standards
at least annually. FHLB advances have from time to time been available to meet
seasonal and other withdrawals of savings accounts and to expand lending.
The Association also uses reverse repurchase agreements as a form of
borrowing. Under reverse repurchase agreements, the Association sells an
investment security to a dealer for a period of time and agrees to buy back that
security at the end of the period and pay the dealer a stated interest rate for
the use of the dealer's funds. The amount of securities sold under such
agreements depends on many factors, including the terms available for such
transactions, the perceived ability to apply the proceeds to investments
yielding a higher return, the demand for the securities and management's
perception of trends in interest rates. The Association had $287.5 million of
securities sold under such agreements at September 30, 1997.
The Association also offers two forms of repurchase agreements to its
customers. One form has an interest rate that floats like a money market deposit
account and is offered at a $1,000 minimum for an 84-day term. The other form
has a fixed rate and is offered in a minimum denomination of $100,000. Both are
fully collateralized by securities. These obligations are not insured by SAIF
and are classified as borrowings for regulatory purposes. The Association had
$72.7 million of such agreements outstanding at September 30, 1997.
19
19
The following table presents certain information regarding borrowings of
Washington Federal at the dates and for the periods indicated.
At or for the Year Ended September 30,
--------------------------------------------
1995 1996 1997
---------- ---------- ----------
(Dollars in Thousands)
Federal funds and securities sold
to dealers under agreements to repurchase:
Average balance outstanding $ 909,539 $ 867,667 $ 756,290
Maximum amount outstanding
at any month-end during the period $1,094,334 $ 936,224 $1,088,904
Weighted average interest rate
during the period(1) 5.96% 5.84% 5.47%
FHLB advances:
Average balance outstanding $ 317,590 $ 862,966 $1,315,353
Maximum amount outstanding at any
month-end during the period $ 527,000 $1,162,000 $1,703,000
Weighted average interest rate
during the period(1) 5.89% 5.58% 5.58%
Securities sold to customers
under agreements to repurchase:
Average balance outstanding $ 54,617 $ 66,048 $ 60,671
Maximum amount outstanding at any
month-end during the period $ 74,236 $ 79,406 $ 72,660
Weighted average interest rate
during the period(1) 5.35% 5.27% 5.04%
Total average borrowings $1,281,746 $1,796,681 $2,132,314
Weighted-average interest rate
on total average borrowings(1) 5.92% 5.70% 5.53%
- -----------------------
(1) Month-end balances times month-end average rates divided by the sum of the
month-end balances.
20
20
OTHER RATIOS
The following table sets forth certain ratios relating to the Company
for the periods indicated.
Year Ended September 30,
--------------------------------
1995 1996 1997
----- ----- -----
Return on assets(1)(4) 1.87% 1.82% 1.86%
Return on equity(2)(4) 13.99 15.37 16.50
Average equity to average assets 13.41 11.78 11.47
Dividend payout ratio(3) 45.69 42.65 40.72
- ---------------------------
(1) Net income divided by average total assets.
(2) Net income divided by average equity.
(3) Dividends declared per share divided by net income per share.
(4) Amounts exclude the effects of a one-time assessment of institutions with
SAIF-insured deposits to recapitalize the SAIF.
21
21
RATE/VOLUME ANALYSIS
The table below sets forth certain information regarding changes in
interest income and interest expense of the Association for the periods
indicated. For each category of interest-earning asset and interest-bearing
liability, information is provided on changes attributable to (1) changes in
volume (changes in volume multiplied by old rate), (2) changes in rate (changes
in rate multiplied by average volume), and (3) changes in rate-volume (change in
rate multiplied by change in average volume). The change in interest income and
interest expense attributable to change in both volume and rate has been
allocated proportionately to the change due to volume and the change due to
rate.
Year Ended September 30,
-------------------------------------------------------------------------------------------
1995 vs. 1994 1996 vs. 1995
Increase (Decrease) Due to Increase (Decrease) Due to
------------------------------------------- --------------------------------------------
Volume Rate Rate/Vol Total Volume Rate Rate/Vol Total
-------- -------- -------- -------- -------- -------- -------- --------
(In Thousands)
Interest income:
Loan portfolio $ 30,891 $ (6,696) $ 5,861 $ 30,056 $ 72,833 $ (4,217) $ (1,330) $ 67,286
Mortgaged-backed securities 27,470 753 (4,839) 23,384 (10,842) 999 (156) (9,999)
Investments(1) 4,787 (2,086) 48 2,749 6,242 (2,374) (710) 3,158
-------- -------- -------- -------- -------- -------- -------- --------
All interest-earning assets 63,148 (8,029) 1,070 56,189 68,233 (5,592) (2,196) 60,445
-------- -------- -------- -------- -------- -------- -------- --------
Interest expense:
Customer accounts 2,703 22,123 764 25,590 8,855 5,294 407 14,556
FHLB advances and other 33,598 4,181 3,770 41,549 29,908 (2,822) (1,150) 25,936
borrowings -------- -------- -------- -------- -------- -------- -------- --------
All interest-bearing liabilities 36,301 26,304 4,534 67,139 38,763 2,472 (743) 40,492
-------- -------- -------- -------- -------- -------- -------- --------
Change in net interest income $ 26,847 $(34,333) $ (3,464) $(10,950) $ 29,470 $ (8,064) $ (1,453) $ 19,953
======== ======== ======== ======== ======== ======== ======== ========
Year Ended September 30,
--------------------------------------------
1997 vs. 1996
Increase (Decrease) Due to
--------------------------------------------
Volume Rate Rate/Vol Total
-------- -------- -------- --------
Interest income:
Loan portfolio $ 57,591 $ (445) $ (5,022) $ 52,124
Mortgaged-backed securities 2,793 (2,223) (29) 541
Investments(1) 163 1,937 31 2,131
-------- -------- -------- --------
All interest-earning assets 60,547 (731) (5,020) 54,796
-------- -------- -------- --------
Interest expense:
Customer accounts 17,907 (4,461) (666) 12,780
FHLB advances and other 19,471 (2,942) (607) 15,922
borrowings -------- -------- -------- --------
All interest-bearing liabilities 37,378 (7,403) (1,273) 28,702
-------- -------- -------- --------
Change in net interest income $ 23,169 6,672 $ (3,747) $ 26,094
======== ======== ======== ========
- --------------------
(1) Includes interest on overnight investments and dividends on stock of the
FHLB of Seattle.
22
22
INTEREST RATE RISK
The Company accepts a high level of interest rate volatility as a result
of its policy to originate fixed-rate single family home loans which are
longer-term in nature than the short-term characteristics of its liabilities of
customer accounts and borrowed money. The strong capital position and low
operating costs have allowed the Company to manage interest rate risk, within
guidelines established by the Board of Directors of the Company, through all
interest rate cycles. A significant increase in market interest rate could
adversely affect net interest income of the Company. The Company's interest rate
risk approach has never resulted in the recording of a monthly operating loss.
One approach used to quantify interest rate risk is the net portfolio
value ("NPV") analysis. This analysis calculates the difference between the
present value of interest-bearing liabilities and the present value of expected
cash flows from interest-earning assets and off-balance sheet contracts. The
following table sets forth, at September 30, 1997, an analysis of the Company's
interest rate risk as measured by the estimated changes in NPV resulting from
instantaneous and sustained parallel shifts in the yield curve (+ or - 400 basis
points, measured in 100 basis point increments.)
Change in Estimated Estimated increase
interest rates NPV Amount (Decrease) in NPV Amount Percent
- ---------------------------------------------------------------------------------
(Basis Points) (Dollars in Thousands)
+400 $ 9,374 $(876,382) -99%
+300 229,093 (656,663) -74%
+200 452,377 (433,379) -49%
+100 682,700 (203,056) -23%
0 885,756 -- 0%
-100 993,439 107,683 12%
-200 1,034,439 148,683 17%
-300 1,101,582 215,826 24%
-400 1,176,460 290,704 33%
Certain assumptions were used in preparing the above table. These assumptions
relate to interest rates, loan prepayment rates, deposit decay rates and the
market values of certain assets under the various interest rate scenarios. Even
if interest rates change in the designated amounts, there can be no assurance
that the Company's assets and liabilities would perform as set forth above.
23
23
SUBSIDIARIES
The Company is a non-diversified unitary savings and loan holding
company who conducts its primary business through its only subsidiary, the
Association. The Association has several wholly-owned subsidiaries which are
discussed further below.
Washington Federal is permitted by current federal regulations to invest
an amount up to 2% of its assets in stock, paid-in surplus and unsecured loans
in service corporations. The Association may invest an additional 1% of its
assets when the additional funds are utilized for inner-city or community
development purposes. In addition, federally-chartered savings institutions
which are in compliance with regulatory capital requirements and other
conditions also may make loans to service corporations in an aggregate amount of
up to 50% of the institution's capital as defined in federal regulations.
At September 30, 1997, the Association was authorized under the current
regulations to have a maximum investment of $113.5 million in its service
corporations, exclusive of the additional 1% of assets investments permitted for
inner-city or community development purposes but inclusive of the ability to
make loans to its subsidiaries. On that date, the Association's investment in
and unsecured loans to its five wholly-owned service corporations amounted to
$21.8 million and the Association had $5.4 million in conforming loans
outstanding to its subsidiaries.
At September 30, 1997, Washington Services, Inc. ("WSI"), a wholly-owned
subsidiary of the Association, was developing a 301-acre light industrial center
in the technology corridor of South Snohomish County, Washington, of which 114
buildable acres, with an investment of $11.0 million, remained unsold as of
September 30, 1997. Based upon the sales history of this development, the
Association believes the net realizable value from the sale of the remaining
properties exceeds the subsidiary's basis in these properties.
First Insurance Agency, Inc., a wholly-owned subsidiary of the
Association, is an insurance brokerage company which offers a full line of
individual and business insurance products to customers of the Association.
First Federal Financial Services, Inc., a wholly-owned subsidiary of the
Association, is incorporated under the laws of Idaho. The subsidiary is engaged
in real estate development activities.
Freedom Vineyards, Inc., a wholly-owned subsidiary of WSI, is
incorporated under the laws of California for the purpose of operating an
agricultural property located in that state. The Association intends to sell
this property, which is classified as real estate held for sale.
Statewide Mortgage Services, Inc. a wholly-owned subsidiary of the
Association, is incorporated under the laws of Washington for the purpose of
operating a commercial office building located in that state.
24
24
As a result of the acquisition of Metropolitan Bancorp the Company
acquired a 19% interest in the outstanding common stock of Phoenix Mortgage &
Investment, Inc., a mortgage- banking company headquartered in Lynnwood,
Washington which emphasizes the origination of single-family residential loans
through seven loan origination offices located in northwest Washington. In
February 1997, the Company sold its 19% interest in Phoenix Mortgage &
Investment, Inc. to Phoenix's majority stockholders for $585,000. The sale
exceeded the Company's basis in the investment of $354,000 by $231,000, which
was recorded as an adjustment to goodwill.
A savings association is required to deduct the amount of the investment
in, and extensions of credit to, a subsidiary engaged in any activities not
permissible for national banks. Because the acquisition and development of real
estate is not a permissible activity for national banks, the investments in and
loans to the subsidiary of the Association which is engaged in such activities
are subject to exclusion from the capital calculation. See "Regulation -
Association--Regulatory Capital Requirements."
25
25
EMPLOYEES
As of September 30, 1997, the Company had approximately 656 employees,
including the full-time equivalent of 51 part-time employees and its service
corporation employees. None of these employees are represented by a collective
bargaining agent, and the Company has enjoyed harmonious relations with its
personnel.
EXECUTIVE OFFICERS
The following table sets forth certain information concerning individuals who
are deemed to be executive officers of Washington Federal as of November 30,
1997.
Names and Positions
or Offices Age Business Experience during the last five years
- --------------------------------- ------ -------------------------------------------------
Guy C. Pinkerton 63 Chairman since November 1994; Chief
Director, President and Chief Executive Officer since October 1992; Director
Executive Officer since October 1991; President since July 1988
Charles R. Richmond 58 Executive Vice President and Secretary;
Director, Executive Vice Director since February 1995
President and Secretary
Ronald L. Saper 47 Executive Vice President and Chief Financial
Executive Vice President and Officer
Chief Financial Officer
William A. Cassels 56 Executive Vice President
Executive Vice President
Lawrence D. Cierpiszewski 54 Executive Vice President since October 1996;
Executive Vice President previously served as Senior Vice President
Patrick F. Patrick 55 Executive Vice President with completion of
Executive Vice President merger with Metropolitan Bancorp.; previously
served as President, Chief Executive Officer and
Director of Metropolitan Bancorp.
Keith D. Taylor 41 Senior Vice President and Treasurer
Senior Vice President and
Treasurer
26
26
REGULATION
Set forth below is a brief description of certain laws and regulations
which relate to the regulation of the Company and the Association. The
description of these laws and regulations, as well as descriptions of laws and
regulations contained elsewhere herein, does not purport to be complete and is
qualified in its entirety by reference to applicable laws and regulations.
THE COMPANY
GENERAL. The Company is registered as a savings and loan holding company
under the HOLA and is subject to OTS regulation, examination, supervision and
reporting requirements.
ACTIVITIES RESTRICTIONS. There are generally no restrictions on the
activities of a savings and loan holding company which holds only one subsidiary
savings institution. However, if the savings institution subsidiary of such a
holding company fails to meet a qualified thrift lender ("QTL") test, then such
unitary holding company also shall become subject to the activities restrictions
applicable to multiple savings and loan holding companies and, unless the
savings institution requalifies as a QTL within one year thereafter, shall
register as, and become subject to the restrictions applicable to, a bank
holding company. See "- The Association--Qualified Thrift Lender Test."
If the Company were to acquire control of another savings institution,
other than through merger or other business combination with the Association,
the Company would thereupon become a multiple savings and loan holding company.
Except where such acquisition is pursuant to the authority to approve emergency
thrift acquisitions and where each subsidiary savings institution meets the QTL
test, the activities of the Company and any of its subsidiaries (other than the
Association or other subsidiary savings institutions) would thereafter be
subject to further restrictions. Among other things, no multiple savings and
loan holding company or subsidiary thereof which is not a savings institution
shall commence or continue for a limited period of time after becoming a
multiple savings and loan holding company or subsidiary thereof any business
activity, upon prior notice to, and no objection by the OTS, other than: (i)
furnishing or performing management services for a subsidiary savings
institution; (ii) conducting an insurance agency or escrow business; (iii)
holding, managing, or liquidating assets owned by or acquired from a subsidiary
savings institution; (iv) holding or managing properties used or occupied by a
subsidiary savings institution; (v) acting as trustee under deeds of trust; (vi)
those activities authorized by regulation as of March 5, 1987 to be engaged in
by multiple savings and loan holding companies; or (vii) unless the Director of
the OTS by regulation prohibits or limits such activities for savings and loan
holding companies, those activities authorized by the Federal Reserve Board as
permissible for bank holding companies. Those activities described in (vii)
above also must be approved by the Director of the OTS prior to being engaged in
by a multiple savings and loan holding company.
RESTRICTIONS ON ACQUISITIONS. Except under limited circumstances,
savings and loan holding companies are prohibited from acquiring, without prior
approval of the Director of the OTS, (i) control of any other savings
institution or savings and loan holding company or substantially all the assets
thereof or (ii) more than 5% of the voting shares of a savings institution or
holding company thereof which is not a subsidiary. Except with the prior
approval of the
27
27
Director of the OTS, no director or officer of a savings and loan holding
company or person owning or controlling by proxy or otherwise more than 25% of
such company's stock, may acquire control of any savings institution, other than
a subsidiary savings institution, or of any other savings and loan holding
company.
The Director of the OTS may only approve acquisitions resulting in the
formation of a multiple savings and loan holding company which controls savings
institutions in more than one state if (i) the multiple savings and loan holding
company involved controls a savings institution which operated a home or branch
office located in the state of the institution to be acquired as of March 5,
1987; (ii) the acquiror is authorized to acquire control of the savings
institution pursuant to the emergency acquisition provisions of the Federal
Deposit Insurance Act ("FDIA"); or (iii) the statutes of the state in which the
institution to be acquired is located specifically permit institutions to be
acquired by the state-chartered institutions or savings and loan holding
companies located in the state where the acquiring entity is located (or by a
holding company that controls such state-chartered savings institutions).
FEDERAL SECURITIES LAWS. The Company's Common Stock is registered with
the Securities and Exchange Commission under Section 12(g) of the Securities
Exchange Act of 1934 ("Exchange Act"). The Company is subject to the
information, proxy solicitation, insider trading restrictions and other
requirements of the Exchange Act.
THE ASSOCIATION
GENERAL. The Association is a federally-chartered savings association,
the deposits of which are federally insured and backed by the full faith and
credit of the United States Government. Accordingly, the Association is subject
to broad federal regulation and oversight by the OTS and the FDIC extending to
all aspects of its operations. The Association is a member of the FHLB of
Seattle and is subject to certain limited regulation by the Federal Reserve
Board. The Association is a member of the SAIF and its deposits are insured by
the SAIF fund administered by the FDIC. As a result, the FDIC has certain
regulatory and examination authority over the Association.
FEDERAL SAVINGS ASSOCIATION REGULATION. The OTS has extensive authority
over the operations of savings associations. As part of this authority, savings
associations are required to file periodic reports with the OTS and are subject
to periodic examinations by the OTS and the FDIC. Such regulation and
supervision is primarily intended for the protection of depositors.
The investment and lending authority of the Association is prescribed by
federal laws and regulations, and it is prohibited from engaging in any
activities not permitted by such laws and regulations. These laws and
regulations generally are applicable to all federally-chartered savings
associations and many also apply to state-chartered savings associations.
INSURANCE OF ACCOUNTS. The deposits of the Association are insured up to
$100,000 per insured member (as defined by law and regulation) by the SAIF and
are backed by the full faith
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and credit of the United States Government. As insurer, the FDIC is authorized
to conduct examinations of, and to require reporting by, FDIC-insured
institutions. It also may prohibit any FDIC-insured institution from engaging in
any activity the FDIC determines by regulation or order to pose a serious threat
to the FDIC. The FDIC also has the authority to initiate enforcement actions
against savings associations, after giving the OTS an opportunity to take such
action.
Effective October 1, 1996 assessment rates for SAIF-insured institutions
range from 0% of insured deposits for "well-capitalized" institutions with minor
supervisory concerns to .27% of insured deposits for "undercapitalized"
institutions with substantial supervisory concerns. See "Prompt Corrective
Action" below. In addition, an additional assessment of 6.4 basis points is
added to the regular SAIF-assessment until December 31, 1999 in order to cover
Financing Corporation debt service payments.
Both the SAIF and the Bank Insurance Fund ("BIF"), the federal deposit
insurance fund that covers the deposits of state and national banks and certain
state savings banks, are required by law to attain and thereafter maintain a
reserve ratio of 1.25% of insured deposits. The BIF has achieved the required
reserve ratio, and as a result, the FDIC reduced the average deposit insurance
premium paid by BIF-insured banks to a level substantially below the average
premium paid by savings institutions. Banking legislation was enacted September
30, 1996 to eliminate the premium differential between SAIF-insured institutions
and BIF-insured institutions. The legislation provided that all insured
depository institutions with SAIF-assessable deposits as of March 31, 1995 pay a
special one-time assessment to recapitalize the SAIF. Pursuant to this
legislation, the FDIC promulgated a rule that established the special assessment
necessary to recapitalize the SAIF at 65.7 basis points of SAIF-assessable
deposits held by affected institutions as of March 31, 1995. Based upon its
level of SAIF deposits as of March 31, 1995, the Association paid a special
assessment of $15.0 million. The assessment was accrued in the quarter ended
September 30, 1996.
Another component of the SAIF recapitalization plan provides for the
merger to the SAIF and the BIF on January 1, 1999, if no insured depository
institution is a savings association on that date. See "Thrift Charter" below.
If legislation is enacted which requires the Association to convert to a bank
charter, the Company would become a bank holding company subject to the more
restrictive activity limits imposed on bank holding companies unless special
grandfather provisions are included in such legislation. The Company does not
believe that its activities would be materially affected in the event that it
was required to become a bank holding company.
REGULATORY CAPITAL REQUIREMENTS. Federally insured savings associations
are required to maintain minimum levels of regulatory capital. Pursuant to
federal law, the OTS has established capital standards applicable to all savings
associations. These standards generally must be as stringent as the comparable
capital requirements imposed on national banks. The OTS also is authorized to
impose capital requirements in excess of these standards on individual
associations on a case-by-case basis.
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The capital regulations create three capital requirements: a tangible
capital requirement, a leverage or core capital requirement and a risk-based
capital requirement. All savings associations must have tangible capital of at
least 1.5% of adjusted total assets (as defined in the regulations). For
purposes of this requirement, tangible capital is core capital less all
intangibles other than certain purchased mortgage servicing rights (of which the
Association has none). Core capital includes common stockholders' equity,
non-cumulative perpetual preferred stock and related surplus and minority
interests in consolidated subsidiaries, less intangibles (unless included under
certain limited conditions, but in no event exceeding 25% of core capital), plus
purchased mortgage servicing rights in an amount not to exceed 50% of core
capital.
The current leverage or core capital requirement is core capital, as
defined above, of at least 3% of adjusted total assets.
The risk-based capital standard requires savings associations to
maintain a minimum ratio of total capital to risk-weighted assets of 8%. Total
capital consists of core capital, defined above, and supplementary capital.
Supplementary capital consists of certain capital instruments that do not
qualify as core capital, and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only in an amount equal to the amount of
core capital. In determining the required amount of risk-based capital, total
assets, including certain off-balance sheet items, are multiplied by a risk
weight based on the risks inherent in the type of assets. The risk-weighing
categories range from 0% for low-risk assets such as U.S. Treasury securities
and GNMA securities to 100% for various types of loans and other assets deemed
to be of higher risk. Single family mortgage loans having loan-to-value ratios
not exceeding 80% and meeting certain additional criteria, as well as certain
multi-family residential property loans, qualify for a 50% risk-weight
treatment. The book value of each asset is multiplied by the risk-weighting
applicable to the asset category, and the sum of the products of this
calculation equals total risk-weighted assets.
OTS regulations impose special capitalization standards for savings
associations that own service corporations and other subsidiaries. In addition,
certain exclusions from capital and assets are required when calculating total
capital in addition to the adjustments for calculating core capital. These
adjustments do not materially affect the regulatory capital of the Association.
For information regarding the Association's compliance with each of its
three capital requirements at September 30, 1997, see Note P to the Consolidated
Financial Statements.
In August 1993, the OTS adopted a final rule incorporating an
interest-rate risk component into the risk-based capital regulation. Under the
rule, an institution with a greater than "normal" level of interest rate risk is
subject to a deduction of its interest rate risk component from total capital
for purposes of calculating its risk-based capital. As a result, such an
institution is required to maintain additional capital in order to comply with
the risk-based capital requirement. The final rule was originally to be
effective as of January 1, 1994; however, its effectiveness has been delayed
several times. In August 1995, the OTS issued Thrift Bulletin No. 67, which
allows eligible institutions to request adjustment to their interest rate risk
component as calculated by the
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OTS, or to request to use their own models to calculate their interest rate
component. The OTS also indicated that it will continue to delay the
effectiveness of its interest rate risk rule requiring institutions with above
normal interest rate risk exposure to adjust their regulatory capital
requirement until new procedures are implemented and evaluated.
Any savings association that fails any of the capital requirements is
subject to possible enforcement actions by the OTS or the FDIC. Such actions
could include a capital directive, a cease and desist order, civil money
penalties, the establishment of restrictions on an association's operations and
the appointment of a conservator or receiver. The OTS' capital regulation
provides that such actions, through enforcement proceedings or otherwise, could
require one or more of a variety of corrective actions.
PROMPT CORRECTIVE ACTION. Under federal law, each federal banking agency
has implemented a system of prompt corrective action for institutions which it
regulates. Under OTS regulations, an institution shall be deemed to be (i) "well
capitalized" if it has total risk-based capital of 10.0% or more, has a Tier I
risk-based capital ratio of 6.0% or more, has a Tier I leverage capital ratio of
5.0% or more and is not subject to any order or final capital directive to meet
and maintain a specific capital level for any capital measure; (ii) "adequately
capitalized" if it has a total risk-based capital ratio of 8.0% or more, a Tier
I risk-based capital ratio of 4.0% or more and a Tier I leverage capital ratio
of 4.0% or more (3.0% under certain circumstances) and does not meet the
definition of "well capitalized," (iii) "undercapitalized" if it has a total
risk- based capital ratio that is less than 8.0%, a Tier I risk-based capital
ratio that is less than 4.0% or a Tier I leverage capital ratio that is less
than 4.0% (3.0% under certain circumstances), (iv) "significantly
undercapitalized" if it has a total risk-based capital ratio that is less than
6.0%, a Tier I risk-based capital ratio that is less than 3.0% or a Tier I
leverage capital ratio that is less than 3.0%, and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%. Federal law authorizes the OTS to reclassify a well
capitalized institution as adequately capitalized and may require an adequately
capitalized institution or an undercapitalized institution to comply with
supervisory actions as if it were in the next lower category (except that the
FDIC may not reclassify a significantly undercapitalized institution as
critically undercapitalized). As of September 30, 1997, the Association exceeded
the requirements of a well capitalized institution.
LIQUIDITY REQUIREMENTS. All savings associations are required, for each
calendar month, to maintain an average daily balance of liquid assets (including
cash, certain time deposits and savings accounts, bankers' acceptances, certain
government obligations and certain other investments) which is not less than a
certain percentage of the sum of its average daily balance of net withdrawable
deposit accounts and borrowings payable in one year or less during the preceding
calendar month. The liquidity requirement may be changed by the OTS to any
amount between 4% and 10% depending upon economic conditions and savings flows
of all savings associations and is currently 5%.
OTS regulations also require that short-term liquid assets constitute at least
1% of an association's average daily balance of net withdrawable deposit
accounts and short term borrowings during the
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preceding calendar month. Monetary penalties may be imposed upon associations
for violations of liquidity requirements.
QUALIFIED THRIFT LENDER TEST. A savings association that does not meet a
QTL test set forth in the HOLA and implementing regulations must either convert
to a bank charter or comply with the following restrictions on its operations:
(i) the association may not engage in any new activity or make any new
investment, directly or indirectly, unless such activity or investment is
permissible for a national bank; (ii) the branching powers of the association
shall be restricted to those of a national bank; (iii) the association shall not
be eligible to obtain any advances from its FHLB; and (iv) payment of dividends
by the association shall be subject to the rules regarding payment of dividends
by a national bank. Upon the expiration of three years from the date the
association ceases to be a QTL, it must cease any activity and not retain any
investment not permissible for a national bank and immediately repay any
outstanding FHLB advances (subject to safety and soundness considerations).
Under recent legislation and applicable regulations, any savings
institution is a QTL if (i) it qualifies as a domestic building and loan
association under Section 7701(a)(19) of the Internal Revenue Code (which
generally requires that at least 60% of the institution's assets constitute
housing-related and other qualifying assets) or (ii) at least 65% of the
institution's "portfolio assets" (as defined) consist of certain housing and
consumer-related assets on a monthly average basis in at least nine out of every
12 months. At September 30, 1997, the Association was in compliance with the QTL
test of a domestic building and loan association as defined in the Code.
TRANSACTIONS WITH AFFILIATES. Under federal law, all transactions
between and among a savings association and its affiliates, which include
holding companies, are subject to Sections 23A and 23B of the Federal Reserve
Act. Generally, these requirements limit these transactions to a percentage of
the association's capital and require all of them to be on terms at least as
favorable to the association as transactions with non-affiliates. In addition, a
savings association may not lend to any affiliate engaged in non-banking
activities not permissible for a bank holding company or acquire shares of any
affiliate not a subsidiary. The OTS is authorized to impose additional
restrictions on transactions with affiliates if necessary to protect the safety
and soundness of a savings association. The OTS regulations also set forth
various reporting requirements relating to transactions with affiliates.
Extensions of credit by a savings association to executive officers,
directors and principal shareholders are subject to Section 22(h) of the Federal
Reserve Act, which, among other things, generally prohibits loans to any such
individual where the aggregate amount exceeds an amount equal to 15% of an
institution's unimpaired capital and surplus, plus an additional 10% of
unimpaired capital and surplus in the case of loans that are fully secured by
readily marketable collateral.
Section 22(h) permits loans to directors, executive officers and
principal stockholders made pursuant to a benefit or compensation program that
is widely available to employees of a subject savings association provided that
no preference is given to any officer, director, or principal
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shareholder or related interest thereto over any other employee. In addition,
the aggregate amount of extensions of credit by a savings institution to all
insiders cannot exceed the institution's unimpaired capital and surplus.
Furthermore, Section 22(g) places additional restrictions on loans to executive
officers.
RESTRICTIONS ON CAPITAL DISTRIBUTIONS. OTS regulations impose
limitations on capital distributions by savings associations, including cash
dividends, stock redemptions or repurchases, cash-out mergers, interest payments
on certain convertible debt and other transactions charged to the capital
account of a savings association to make capital distributions. Generally, the
regulation creates a safe harbor for specified levels of capital distributions
from associations meeting at least their minimum capital requirements, so long
as such associations notify the OTS and receive no objection to the distribution
from the OTS. Associations and distributions that do not qualify for the safe
harbor are required to obtain prior OTS approval before making any capital
distributions.
As of September 30, 1997, the Association is a Tier 1 institution which
can make capital distributions during any calendar year equivalent to 100% of
net income for the calendar year-to-date plus 50% of its "surplus capital ratio"
at the beginning of the calendar year. The "surplus capital ratio" is defined to
mean the percentage by which the association's ratio of total capital to assets
exceeds the ratio of its fully phased-in capital requirement to assets, and
"fully phased-in capital requirement" is defined to mean an association's
capital requirement under the statutory and regulatory standards applicable on
December 31, 1994, as modified to reflect any applicable individual minimum
capital requirement imposed upon the association. The OTS has approved the
Association's capital distribution plan through the calendar year 1998.
On December 5, 1994, the OTS published a notice of proposed rulemaking
to amend its capital distribution regulation. Under the proposal, savings
institutions would be permitted to only make capital distributions that would
not result in their capital being reduced below the level required to remain
"adequately capitalized" as defined in the OTS prompt corrective action
regulations. The Association would continue to be required to provide notice to
the OTS of its intent to make a capital distribution. Management does not
believe that the proposal will adversely affect the Association's ability to
make capital distributions if it is adopted substantially as proposed.
FEDERAL HOME LOAN BANK SYSTEM. The Association is a member of the FHLB
of Seattle, which is one of 12 regional FHLBs that administers the home
financing credit function of savings associations. Each FHLB serves as a reserve
or central bank for its members within its assigned region. It is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System. It makes loans to members (i.e., advances) in accordance with
policies and procedures established by the Board of Directors of the FHLB. At
September 30, 1997, the Association's advances from the FHLB amounted to $1.6
billion.
As a member, the Association is required to purchase and maintain stock
in the FHLB of Seattle in an amount equal to at least 1% of its aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year. At September 30, 1997, the Association had $93.6
million in FHLB stock, which was in compliance with this requirement.
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Recent changes in federal law now require the FHLBs to provide funds for
the resolution of troubled savings associations and to contribute to affordable
housing programs through direct loans or interest subsidies on advances targeted
for community investment and low- and moderate-income housing projects. These
contributions have adversely affected the level of FHLB dividends paid and could
continue to do so in the future. These contributions also could have an adverse
effect on the value of FHLB stock in the future.
COMMUNITY REINVESTMENT ACT AND THE FAIR LENDING LAWS. Savings
associations have a responsibility under the Community Reinvestment Act ("CRA")
and related regulations of the OTS to help meet the credit needs of their
communities, including low- and moderate-income neighborhoods. In addition, the
Equal Credit Opportunity Act and the Fair Housing Act (together, the "Fair
Lending Laws") prohibit lenders from discriminating in their lending practices
on the basis of characteristics specified in those statutes. An institution's
failure to comply with the provisions of CRA could, at a minimum, result in
regulatory restrictions on its activities, and failure to comply with the Fair
Lending Laws could result in enforcement actions by the OTS, as well as other
federal regulatory agencies and the U.S. Department of Justice.
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TAXATION
FEDERAL TAXATION
For federal and state income tax purposes, the Company reports its
income and expenses on the accrual basis method of accounting and files its
federal and state income tax returns on a September 30 fiscal year basis. The
Company files consolidated federal and state income tax returns with its
wholly-owned subsidiaries.
For tax years beginning prior to January 1, 1996, a qualified thrift
institution was allowed a bad debt deduction based on a percentage of taxable
income or on actual experience. The Association used the percentage of taxable
income method in tax years 1996 and 1995.
The Small Business Job Protection Act of 1996 (the "Act") requires
qualified thrift institutions such as the Association to recapture the portion
of their tax bad debt reserves that exceeds the September 30, 1988 balance. Such
recaptured amounts are to be taken into ordinary income ratably over a six-year
period beginning in 1997. Accordingly, the Company will have to pay
approximately $2,664,000 in additional federal income taxes, all of which has
been previously accrued for financial reporting purposes, each year of the
six-year period.
The Act also repeals the reserve method of accounting for tax bad debt
deductions and requires thrifts to calculate the tax bad debt deduction based on
actual current loan losses.
A deferred tax liability has not been recognized for the tax bad debt
base year reserves of the Association. The base year reserves are the balance of
reserves as of September 30, 1988 reduced proportionately for reductions in the
Association's loan portfolio since that date. At September 30, 1997, the amount
of those reserves was approximately $4,017,000. The amount of the unrecognized
deferred tax liability at September 30, 1997 was approximately $1,406,000.
Washington Federal's tax returns have been examined through the year
ended September 30, 1990.
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STATE TAXATION
The State of Washington does not have an income tax. A business and
occupation tax based on a percentage of gross receipts is assessed against
businesses; however, interest received on loans secured by mortgages or deeds of
trust on residential properties is not subject to this tax.
The State of Idaho has a corporate income tax with a statutory rate of
8% of apportionable income.
The State of Oregon has a corporate excise tax with a statutory rate of
6.6% of apportionable income.
The State of Utah has a corporate franchise tax with a statutory rate of
5% of apportionable income.
The State of Arizona has a corporate income tax with a statutory rate of
9.0% of apportionable income.
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ITEM 2. PROPERTIES
The Association owns the building in which its home and executive offices are
located, in Seattle, Washington. The following table sets forth certain
information concerning the Association's offices:
Building
Number of ------------------- Net Book Value at
Location Offices Owned Leased(1) September 30, 1997(2)
- -------- --------- ----- --------- ---------------------
(In Thousands)
Washington 39 22 17 $16,852
Idaho 19 16 3 6,274
Oregon 23 15 8 6,884
Utah 11 6 5 7,894
Arizona 12 5 7 4,235
--- -- -- -------
Total 104 64 40 $42,139
=== == == ======
- ---------------
(1) The leases have varying terms expiring from 1997 through 2070, including
renewal options.
(2) Amount represents land and improvements with respect to properties owned by
the Association and represents the book value of leasehold improvements,
where applicable.
Washington Federal evaluates on a continuing basis the suitability and
adequacy of its offices, both branches and administrative centers, and has an
active program of opening, relocating, remodeling, or closing them as necessary
to maintain efficient and attractive premises.
Washington Federal's net investment in premises, equipment and
leaseholds was $47.5 million at September 30, 1997.
ITEM 3. LEGAL PROCEEDINGS
The Association is involved in legal proceedings occurring in the
ordinary course of business which in the aggregate are believed by management to
be immaterial to the financial condition of the Association.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required herein is incorporated by reference from page
27 of the Company's Annual Report to Stockholders for Fiscal 1997 ("Annual
Report"), which is included herein as Exhibit 13.
ITEM 6. SELECTED FINANCIAL DATA
The information required herein is incorporated by reference from page
26 of the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required herein is incorporated by reference on pages 4
through 7 of the Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required herein are
incorporated by reference from pages 8 through 25 and page 27 of the Annual
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required herein is included under Item 1 hereof.
ITEM 11. EXECUTIVE COMPENSATION
The information required herein is incorporated by reference to pages 12
to 15 of the proxy statement dated December 23, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required herein is incorporated by reference to pages 2
to 3 and 5 to 9 of the proxy statement dated December 23, 1997.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required herein is incorporated by reference to page 17
of the proxy statement dated December 23, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following financial statements are incorporated herein by
reference from pages 8 through 25 and page 27 of the Annual Report.
Report of Independent Certified Public Accountants
Consolidated Statements of Financial Condition as of September 30, 1997
and 1996
Consolidated Statements of Operations for each of the years in the
three-year period ended September 30, 1997
Consolidated Statements of Stockholders' Equity for each of the years in
the three-year period ended September 30, 1997
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended September 30, 1997
Notes to Consolidated Financial Statements
(a)(2) There are no financial statement schedules filed herewith.
(a)(3) The following exhibits are filed as part of this report.
No. Exhibit Page
- --- ------- ----
3.1 Articles of Incorporation of the Company (1)
3.2 Bylaws of the Company (1)
4 Specimen Common Stock Certificate (1)
10.1 1982 Employee Stock Compensation Program* (1)
10.2 1987 Stock Option and Stock Appreciation Rights Plan* (1)
10.3 1994 Stock Option and Stock Appreciation Rights Plan* (1)
13 Annual Report to Stockholders
21 Subsidiaries of the Company - Reference is made
to Item 1, "Business - Subsidiaries" for the
required information --
23 Consent of Independent Public Accountants
- --------------
* Management contract or compensation plan.
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(1) Incorporated by reference from the Registrant's Registration
Statement on Form 8-B filed with the SEC on January 26, 1995.
(c) See (a)(3) above for all exhibits filed herewith and the Exhibit
Index.
(d) All schedules are omitted as the required information is not
applicable or the information is presented in the Consolidated Financial
Statements or related notes.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WASHINGTON FEDERAL, INC.
December 22, 1997 By: /s/ Guy C. Pinkerton
Date --------------------------------------
Guy C. Pinkerton, Chairman,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
/s/ Kermit O. Hanson December 22, 1997
- ------------------------------------ -----------------
Kermit O. Hanson, Director Date
/s/ W. Alden Harris December 22, 1997
- ------------------------------------ -----------------
W. Alden Harris, Director Date
/s/ Anna C. Johnson December 22, 1997
- ------------------------------------ -----------------
Anna C. Johnson, Director Date
/s/ John F. Clearman December 22, 1997
- ------------------------------------ -----------------
John F. Clearman, Director Date
/s/ H. Dennis Halvorson December 22, 1997
- ------------------------------------ -----------------
H. Dennis Halvorson, Director Date
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/s/ E. W. Mersereau December 22, 1997
- -------------------------------------------- -----------------
E. W. Mersereau, Jr., Director Date
and Vice Chairman of the Board
/s/ Guy C. Pinkerton December 22, 1997
- -------------------------------------------- -----------------
Guy C. Pinkerton, Director, Chairman, Date
President and Chief Executive Officer
/s/ Richard C. Reed December 22, 1997
- -------------------------------------------- -----------------
Richard C. Reed, Director Date
/s/ Charles R. Richmond December 22, 1997
- -------------------------------------------- -----------------
Charles R. Richmond, Director, Date
Executive Vice President and Secretary
/s/ Ronald L. Saper December 22, 1997
- -------------------------------------------- -----------------
Ronald L. Saper, CPA, Executive Date
Vice President and Chief Financial
Officer (principal financial officer)
/s/ Keith D. Taylor December 22, 1997
- -------------------------------------------- -----------------
Keith D. Taylor, CPA, Senior Vice President Date
and Treasurer
(principal accounting officer)