FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended . . . . . . . . . . . . March 31, 1996
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to __________________
For Quarter Ended March 31, 1996 Commission file number 0-25454
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WASHINGTON FEDERAL, INC.
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(Exact name of registrant as specified in its charter)
Washington 91-1661606
- - ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
425 Pike Street Seattle, Washington 98101
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(Address of principal executive offices and Zip Code)
(206) 624-7930
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
(1) Yes X . No .
--- ---
(2) Yes X . No .
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
TITLE OF CLASS: AT APRIL 30, 1996
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Common stock, $1.00 par value 42,322,774 shares
-1-
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART I
Item 1. Financial Statements
The Consolidated Financial Statements of Washington Federal, Inc.
and Subsidiaries filed as a part of the report are as follows:
Consolidated Statements of Financial Condition
as of March 31, 1996 and September 30, 1995. . . . . . . . . Page 3
Consolidated Statements of Operations for the three
and six months ended March 31, 1996 and 1995 . . . . . . . . Page 4
Consolidated Statements of Cash Flows for the
six months ended March 31, 1996 and 1995 . . . . . . . . . . Page 5
Notes to Consolidated Financial Statements . . . . . . . . . Page 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . Page 7
PART II
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . Page 12
Item 2. Changes in Securities. . . . . . . . . . . . . . . . . . . . Page 12
Item 3. Defaults upon Senior Securities. . . . . . . . . . . . . . . Page 12
Item 4. Submission of Matters to a Vote of Stockholders. . . . . . . Page 12
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . Page 12
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . Page 12
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . Page 13
-2-
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
MARCH 31, 1996 September 30, 1995
-------------- ------------------
(In thousands, except per share data)
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,143 $ 23,168
Available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . . . . . 556,746 361,625
Held-to-maturity securities, market value of $741,556 at March 31, 1996. . . . . 693,666 975,890
Loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,471,535 3,034,027
Interest receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,841 31,441
Premises and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 40,382 39,930
Real estate held for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,840 32,129
FHLB stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46,815 45,134
Costs in excess of net assets acquired . . . . . . . . . . . . . . . . . . . . . 29,230 31,002
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,791 3,056
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$4,928,989 $4,577,402
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Customer accounts
Savings and demand accounts. . . . . . . . . . . . . . . . . . . . . . . . . $2,429,971 $2,371,099
Repurchase agreements with customers . . . . . . . . . . . . . . . . . . . . 66,613 74,236
---------- ----------
2,496,584 2,445,335
FHLB advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 892,000 527,000
Other borrowings, primarily securities sold under agreements to repurchase . . . 862,402 957,087
Advance payments by borrowers for taxes and insurance. . . . . . . . . . . . . . 19,054 23,222
Federal and state income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 34,758 32,542
Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . 26,092 16,287
---------- ----------
4,330,890 4,001,473
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value, 100,000,000 shares authorized;
43,978,230 and 39,943,213 shares issued; 42,592,347 and
38,874,228 shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . 43,978 39,943
Paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 405,144 320,920
Valuation adjustment for available-for-sale securities, net of taxes . . . . . . 11,000 8,000
Treasury stock, at cost; 1,385,883 and 1,068,985 shares. . . . . . . . . . . . . (26,897) (22,412)
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164,874 229,478
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598,099 575,929
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$4,928,989 $4,577,402
========== ==========
CONSOLIDATED FINANCIAL HIGHLIGHTS
Stockholders' equity per share . . . . . . . . . . . . . . . . . . . . . . . . . $ 14.04 $ 13.47
Stockholders' equity to total assets . . . . . . . . . . . . . . . . . . . . . . 12.13% 12.58%
Loans serviced for others. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 127,003 $ 146,360
Weighted average rates at period end
Loans and mortgage-backed securities. . . . . . . . . . . . . . . . . . . . . 8.15% 8.26%
Investment securities*. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.34 7.69
Combined on loans, mortgage-backed securities and investment securities. . 8.10 8.22
Customer accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.19 5.51
Borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.50 5.87
Combined cost of customer accounts and borrowings. . . . . . . . . . . . . 5.32 5.65
Interest rate spread. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.78 2.57
*Includes municipal bonds at tax equivalent yields
-3-
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Quarter Ended March 31, Six Months Ended March 31,
------------------------- --------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
(In thousands, except per share data)
INTEREST INCOME
Loans. . . . . . . . . . . . . . . . . . . . . . . . . . $ 75,065 $ 56,507 $ 146,337 $ 111,696
Mortgage-backed securities . . . . . . . . . . . . . . . 19,587 21,616 39,700 41,716
Investment securities. . . . . . . . . . . . . . . . . . 5,432 5,302 10,887 10,231
----------- ----------- ----------- -----------
100,084 83,425 196,924 163,643
INTEREST EXPENSE
Customer accounts. . . . . . . . . . . . . . . . . . . . 33,325 26,552 67,659 51,285
FHLB advances and other borrowings . . . . . . . . . . . 23,606 17,643 46,776 32,185
----------- ----------- ----------- -----------
56,931 44,195 114,435 83,470
----------- ----------- ----------- -----------
NET INTEREST INCOME. . . . . . . . . . . . . . . . . . . 43,153 39,230 82,489 80,173
Provision for loan losses. . . . . . . . . . . . . . . . 301 373 784 694
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES. . . 42,852 38,857 81,705 79,479
----------- ----------- ----------- -----------
OTHER INCOME
Gain on sale of securities . . . . . . . . . . . . . . . 208 --- 709 ---
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 1,044 1,055 2,280 2,168
----------- ----------- ----------- -----------
1,252 1,055 2,989 2,168
OTHER EXPENSE
Compensation and fringe benefits . . . . . . . . . . . . 5,084 4,676 9,872 8,950
Federal insurance premiums . . . . . . . . . . . . . . . 1,435 1,243 2,755 2,476
Occupancy expense. . . . . . . . . . . . . . . . . . . . 836 771 1,596 1,577
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 2,247 2,543 4,173 5,237
----------- ----------- ----------- -----------
9,602 9,233 18,396 18,240
Gains on real estate owned, net. . . . . . . . . . . . . 7 86 21 104
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES . . . . . . . . . . . . . . . 34,509 30,765 66,319 63,511
Income taxes . . . . . . . . . . . . . . . . . . . . . . 12,700 11,193 24,256 23,245
----------- ----------- ----------- -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . $ 21,809 $ 19,572 $ 42,063 $ 40,266
=========== =========== =========== ===========
PER SHARE DATA
Net income . . . . . . . . . . . . . . . . . . . . . . . $ .51 $ .44 .98 $ .91
Cash dividends . . . . . . . . . . . . . . . . . . . . . $ .22 $ .20 $ .44 $ .40
Weighted average number of shares outstanding,
including dilutive stock options . . . . . . . . . . . 43,099,537 44,054,115 43,102,146 44,036,750
Return on average assets . . . . . . . . . . . . . . . . 1.79% 1.92% 1.76% 2.01%
-4-
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended March 31,
--------------------------
1996 1995
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(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,063 $ 40,266
Adjustments to reconcile net income to net cash provided by operating activities
Amortization of fees, discounts and premiums, net. . . . . . . . . . . . . . . . . (9,565) (8,519)
Amortization of costs in excess of net assets acquired . . . . . . . . . . . . . . 1,772 1,766
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 926 945
Gains on investment securities and real estate held for sale . . . . . . . . . . . (730) (104)
Increase in accrued interest receivable. . . . . . . . . . . . . . . . . . . . . . (1,400) (3,081)
Increase in income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . 1,192 2,069
FHLB stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,681) (2,012)
Decrease (increase) in other assets. . . . . . . . . . . . . . . . . . . . . . . . (9,532) 335
Increase in accrued expenses and other liabilities . . . . . . . . . . . . . . . . 9,805 933
--------- ---------
Net cash provided by operating activities. . . . . . . . . . . . . . . . . . . . . . 32,850 32,598
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans and contracts originated
Loans on existing property . . . . . . . . . . . . . . . . . . . . . . . . . . . . (550,007) (199,959)
Construction loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (199,977) (150,867)
Land loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (46,076) (35,730)
Loans refinanced . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (40,573) (8,865)
--------- ---------
(836,633) (395,421)
Savings account loans originated . . . . . . . . . . . . . . . . . . . . . . . . . . (3,046) (2,010)
Loan principal repayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400,195 262,748
Increase (decrease) in undisbursed loans in process. . . . . . . . . . . . . . . . . 9,375 (6,640)
Loans purchased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (333) (288)
Purchase of available-for-sale securities. . . . . . . . . . . . . . . . . . . . . . (171,096) (88,310)
Principal payments and maturities of available-for-sale securities . . . . . . . . . 112,848 16,506
Sales of available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . 98,691 ---
Purchases of held-to-maturity securities . . . . . . . . . . . . . . . . . . . . . . --- (175,078)
Principal payments and maturities of held-to-maturity securities . . . . . . . . . . 61,478 40,363
Proceeds from sale of real estate held for sale. . . . . . . . . . . . . . . . . . . 521 771
Premises and equipment purchased, net. . . . . . . . . . . . . . . . . . . . . . . . (1,378) (1,010)
Proceeds from sale of FHLB stock . . . . . . . . . . . . . . . . . . . . . . . . . . --- 25,000
--------- ---------
Net cash used by investing activities. . . . . . . . . . . . . . . . . . . . . . . . (329,378) (323,369)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net deposits (withdrawals) on short-term customer accounts . . . . . . . . . . . . . 37,134 (56,797)
Deposits to long-term customer accounts. . . . . . . . . . . . . . . . . . . . . . . 333,523 398,414
Withdrawals from long-term customer accounts . . . . . . . . . . . . . . . . . . . . (387,067) (361,730)
Interest credited to customer accounts . . . . . . . . . . . . . . . . . . . . . . . 67,659 51,285
Net increase in short-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . 370,315 280,314
Repayments of long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . (100,000) ---
Proceeds from exercise of common stock options . . . . . . . . . . . . . . . . . . . 325 411
Treasury stock purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,485) (5,917)
Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,733) (17,561)
Decrease in advance payments by borrowers for taxes and insurance. . . . . . . . . . (4,168) (5,955)
--------- ---------
Net cash provided by financing activities. . . . . . . . . . . . . . . . . . . . . . 294,503 282,464
--------- ---------
DECREASE IN CASH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,025) (8,307)
CASH AT BEGINNING OF PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,168 30,472
--------- ---------
CASH AT END OF PERIOD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 21,143 $ 22,165
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
NONCASH INVESTING ACTIVITIES
Real estate acquired through foreclosure . . . . . . . . . . . . . . . . . . . . . $ 1,211 $ 1,684
Securities reclassified to available-for-sale portfolio. . . . . . . . . . . . . . 215,489 324,904
CASH PAID DURING THE PERIOD FOR
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,926 82,840
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,147 21,335
-5-
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED MARCH 31, 1996
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The consolidated interim financial statements included in this report have
been prepared by Washington Federal, Inc. ("Company") without audit. In the
opinion of management, all adjustments (consisting only of normal recurring
accruals) necessary for a fair presentation are reflected in the interim
financial statements. The interim results of operations and cash flows
through February 2, 1995 were those of Washington Federal, Inc.'s
predecessor, Washington Federal Savings and subsidiaries. The September 30,
1995 Consolidated Statement of Financial Condition was derived from audited
financial statements.
NOTE B - CASH DIVIDEND PAID
Dividends per share increased to 22 cents for the quarter ended March 31,
1996 compared with 20 cents for the same period one year ago. On April 26,
1996 the Company paid its fifty-third consecutive quarterly cash dividend.
NOTE C - ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES
In November 1995, the Financial Accounting Standards Board issued "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities" (the "Guide"). The Guide allowed the Company to
reassess the appropriateness of the classifications of all its securities
held at the time and no later than December 31, 1995 account for any
resulting reclassification at fair value. Prior to December 31, 1995, the
Company reclassified as available-for-sale mortgage-backed securities with an
amortized cost of $215,489,000, and unrealized gains of $8,517,000, net of
tax, were recorded as a separate component of stockholders' equity.
NOTE D - STOCK REPURCHASE PROGRAM
On March 28, 1996, the Board of Directors of Washington Federal, Inc.,
authorized its second stock repurchase program, which provides for the
repurchase of an additional 2,000,000 shares of common stock, or
approximately 5% of its outstanding shares. The repurchase will be made in
open market transactions from time to time as deemed prudent by management.
The repurchased shares will be held as treasury stock and will be available
for general corporate purposes.
As of March 31, 1996, 1,385,883 shares had been repurchased, under the
initial stock repurchase program, at an average price of $19.41 per share.
The Company has negotiated a $40,000,000 revolving credit facility to fund
the repurchase of outstanding common stock.
NOTE E - STOCK DIVIDEND
On January 31, 1996, the Board of Directors of the Company declared an
eleven-for-ten stock split in the form of a 10% stock dividend to
stockholders of record on February 15, 1996 which was distributed on March 1,
1996. All previously reported per share amounts have been adjusted
accordingly.
-6-
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
On February 3, 1995, Washington Federal, Inc. (the "Company") completed its
reorganization into a savings and loan holding company structure (the
"Reorganization"). The Company's predecessor, Washington Federal Savings
(the "Association") formed the Company in November, 1994 to effect the
Reorganization. After stockholder approval of the Reorganization, the
Association became a wholly-owned subsidiary of the Company.
INTEREST RATE RISK
The Association assumes a high level of interest rate risk 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. At March 31, 1996 the Company had
$2,436,844,000 more liabilities subject to repricing in the next year than
assets subject to repricing. This amounted to a negative maturity gap of
49.4% of total assets.
During the past two quarters short-term interest rates continued to decline
and the Company's interest bearing liabilities were repriced more quickly
than the longer-term interest earning assets which resulted in an improved
interest rate spread. The expansion of the interest rate spread to 2.78%
followed declines in the previous ten quarters. To counter the contraction
of the interest rate spread during the previous ten quarters, the Company
utilized some of its borrowing capacity, associated with its strong capital
position, to expand the balance sheet during that phase of the interest rate
cycle by placing more emphasis on residential loan production and by
acquiring mortgage-backed securities. With the improvement of the interest
rate spreads, the Company will control its asset growth and attempt to
deleverage the balance sheet. FHLB advances and other borrowed money
increased to an equivalent of 35.6% of total assets at March 31, 1996,
compared to 12.6% of total assets at September 30, 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net worth at March 31, 1996 was $598,099,000 or 12.13% of
total assets. This is an increase of $22,170,000 from September 30, 1995
when net worth was $575,929,000 or 12.6% of total assets. The ratio of net
worth to total assets remains at a high level despite an 8% increase in
assets during the six months.
The Company's percentage of net worth to total assets is among the highest in
the nation and the Association's regulatory capital ratios are over three
times the minimum required under Office of Thrift Supervision ("OTS")
regulations. Management believes this strong net worth position will help
protect earnings against interest rate risk and enable it to compete more
effectively for controlled growth through acquisitions and increased customer
deposits.
The Company's cash and investment securities amounted to $1,318,370,000, a
decrease of $87,447,000 from six months ago.
-7-
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The minimum liquidity levels of the Association are governed by the
regulations of the OTS. Liquidity is defined as the ratio of average cash
and eligible unpledged investment securities to the sum of average
withdrawable savings plus short-term borrowings. Currently, the Association
is required to maintain short-term liquidity at one percent and total
liquidity at five percent. At March 31, 1996, total liquidity was 5.33%
compared to 5.68% at September 30, 1995.
CHANGES IN FINANCIAL CONDITION
AVAILABLE-FOR-SALE AND HELD-TO-MATURITY SECURITIES. On October 1, 1994, the
Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS No. 115"). Generally after the adoption of SFAS
No. 115, no transfers between the held-to-maturity and available-for-sale
categories are allowed, however a safe harbor was granted through December
31, 1995 (see Note C).
The Company purchased $171,096,000 of U.S. government and agency securities
during the six month period, all of which were categorized as
available-for-sale.
The Company sold $98,691,000 of available-for-sale mortgage-backed securities
which resulted in net gains of $709,000 during the six month period ended
March 31, 1996. As of March 31, 1996, the Company had unrealized gains on
available-for-sale securities of $11,000,000, net of tax, which were recorded
as part of stockholders' equity.
LOANS RECEIVABLE. Loans receivable grew 14% during the six month period to
$3,471,535,000 at March 31, 1996 from $3,034,027,000 at September 30, 1995.
The increase resulted from record loan originations of $836,633,000 in fiscal
1996, an increase of 116% from the six months ended March 31, 1995.
COSTS IN EXCESS OF NET ASSETS ACQUIRED. At least annually the Company reviews
its long lived assets, including goodwill, for potential impairment by
measuring their recoverability based on expected future cash flows or other
appropriate valuation techniques. As of March 31, 1996, there was no
material impairment of the costs in excess of net assets acquired. However,
pending legislation to recapitalize the Savings Association Insurance Fund
("SAIF"), may result in an impairment to these assets. The Company will
continue to evaluate these assets and, if appropriate, provide for any
diminuition in value of these assets as a result of any legislation.
CUSTOMER ACCOUNTS. Customer accounts at March 31, 1996 were $2,496,584,000
compared with $2,445,335,000 at September 30, 1995. The growth in customer
accounts approximated 2% or $51,249,000 for the six-month period.
-8-
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CHANGES IN FINANCIAL POSITION (CONTINUED)
FHLB ADVANCES AND OTHER BORROWINGS. Total borrowings increased $270,315,000
to $1,754,402,000 at March 31, 1996, an 18% increase over six months ago.
See Interest Rate Risk above.
RESULTS OF OPERATIONS
Net interest income increased $3,923,000 (10%) to $43,153,000 for the March
1996 quarter from $39,230,000 a year ago, while net interest income increased
$2,316,000 (3%) to $82,489,000 for the six months ended March 31, 1996 from
the $80,173,000 for the same period of 1995. Net interest spread, which
increased to 2.78% from 2.55% at December 31, 1995 and 2.57% at September 30,
1995, rose for the first time in the past ten quarters.
Interest income on loans increased $18,558,000 (33%) to $75,065,000 for the
quarter ended March 31, 1996 from $56,507,000 for the same period one year
ago. For the six months ended March 31, 1996 interest on loans increased
$34,641,000 (31%) to $146,337,000 from $111,696,000 for the same period one
year ago. The increase resulted from record loan originations, increasing
total loans to $3,471,535,000 at March 31, 1996 from $2,567,774,000 at March
31, 1995. Average interest rates on loans were 8.29% at March 31, 1996
compared with 8.50% one year ago.
Interest income on mortgage-backed securities declined $2,029,000 (9%) to
$19,587,000 for the quarter ended March 31, 1996 versus the $21,616,000 for
the quarter one year ago. Interest on mortgage-backed securities declined
$2,016,000 (5%) to $39,700,000 for the six months ended March 31, 1996
compared with the $41,716,000 for the same period one year ago. The weighted
average yield of 7.65% at March 31, 1996 was nearly unchanged from the 7.67%
at March 31, 1995. The mortgage-backed securities portfolio declined 14.5%
to $958,180,000 at March 31, 1996 as $71,501,000 of available-for-sale
mortgage-backed securities were sold and the Company experienced an increased
level of payoffs due to a declining interest rate environment.
Interest expense on customer accounts increased $6,773,000 (26%) to
$33,325,000 for the March 1996 quarter from $26,552,000 for the March 1995
quarter. Interest expense on customer accounts increased $16,374,000 (32%) to
$67,659,000 for the six months ended March 31, 1996 versus $51,285,000 for
the same period one year ago. The average cost of customer accounts
decreased to 5.19% at quarter end compared to the 5.52% rate of one quarter
ago, and the 5.51% rate of six months ago. However, the rates have still not
declined to the 5.12% rate of one year ago.
Interest on FHLB advances and other borrowings increased $5,963,000 (34%) to
$23,606,000 for the March 1996 quarter compared with the $17,643,000 for the
March 1995 quarter. The six-month figures increased $14,591,000 (45%) to
$46,776,000 compared with the $32,185,000 for the same period one year ago.
The average rates paid at March 31, 1996 declined to 5.50% from the 5.77% one
quarter ago, 5.87% six months ago and 6.06% one year ago.
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Other income increased $197,000 (19%) to $1,252,000 for the March 1996
quarter compared with the $1,055,000 for the March 1995 quarter. The
increase was $821,000 (38%) to $2,989,000 for the six months ended March 31,
1996 versus $2,168,000 for the same period one year ago. Gains on the sale
of available-for-sale securities totalled $208,000 and $709,000 for the
quarter and six months ended March 31, 1996, respectively. No securities
were sold for the six months ended March 31, 1995.
Other expense increased $714,000 (8%) and $1,119,000 (6%), respectively, for
the quarter and six months ended March 31, 1996 compared to the same periods
ended March 31, 1995. Both increases were offset by adjustments of $345,000
and $953,000, respectively, for deferred loan origination costs associated
with record loan volumes for the quarter and six months ended March 31, 1996.
The changes reflect general inflationary increases plus the incremental
costs associated with the expansion of the branch network from 84 offices at
March 31, 1995 to 89 offices at March 31, 1996. Other expense for the
quarter and six months ended March 31, 1996 equalled .79% and .77%,
respectively, of average assets compared to .90% and .91%, respectively, for
the same periods one year ago. The number of staff, including part-time
employees on a full-time equivalent basis, were 583 at March 31, 1996 and 550
at March 31, 1995.
Income taxes increased $1,507,000 (13%) and $1,011,000 (4%) for the quarter
and six months ended March 31, 1996, respectively, when compared to the same
period one year ago due to higher taxable income. The effective tax rate was
36.6% for both the six-month period ended March 31, 1996 and the same period
ended March 31, 1995.
PROPOSED FINANCIAL INSTITUTION LEGISLATION
The Association is a SAIF-insured institution with the Federal Deposit
Insurance Corporation ("FDIC"). One plan under consideration by Congress
provides for a one-time, special assessment of approximately .85% to be
imposed on all deposits subject to SAIF in order to achieve mandated reserve
ratios. The special assessment of the Association would approximate $20
million. No assurance can be given, however, as to whether or when such a
proposal will be adopted.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated Financial Statements and related Notes presented elsewhere
herein have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars without considering changes in the
relative purchasing power of money over time due to inflation.
-10-
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
IMPACT OF INFLATION AND CHANGING PRICES (CONTINUED)
Unlike many industrial companies, substantially all of the assets and
virtually all of the liabilities of the Association are monetary in nature.
As a result, interest rates have a more significant impact on the
Association's performance than the general level of inflation. Over short
periods of time, interest rates may not necessarily move in the same
direction or in the same magnitude as inflation.
-11-
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time the Company or its subsidiaries are engaged in legal
proceedings in the ordinary course of business, none of which are considered
to have a material impact on the Company's financial position or results of
operations.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
The Annual Meeting of Stockholders of Washington Federal, Inc. was held on
January 31, 1996. Four nominees for election as Directors, Anna C. Johnson,
Vernon Keener, Richard C. Reed and Charles R. Richmond, were elected for
three-year terms. The votes cast for Anna C. Johnson were 35,170,926 shares
"For" and 376,509 shares withheld. The votes cast for Vernon Keener were
35,005,766 shares "For" and 541,669 shares withheld. The votes cast for
Richard C. Reed were 35,131,193 shares "For" and 416,242 shares withheld.
The votes cast for Charles R. Richmond were 35,173,961 shares "For" and
373,474 shares withheld.
The stockholders ratified the appointment of Deloitte & Touche LLP as
Washington Federal, Inc.'s independent public accountants for fiscal 1996
with 35,364,828 votes cast for the proposal, 48,161 votes cast against the
proposal and 134,446 shares abstaining.
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Not applicable
-12-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
/s/ Guy C. Pinkerton
---------------------------------------
May 7, 1996 GUY C. PINKERTON
Chairman, President and
Chief Executive Officer
/s/ Ronald L. Saper
---------------------------------------
May 7, 1996 RONALD L. SAPER
Executive Vice-President and
Chief Financial Officer
/s/ Keith D. Taylor
---------------------------------------
May 7, 1996 KEITH D. TAYLOR
Senior Vice-President and
Treasurer
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