FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended . . . . . . . . . .
December 31,
1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
For Quarter Ended December 31, 1999
Commission file number
0 25454
WASHINGTON FEDERAL, INC.
(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
(Address of principal executive offices and Zip Code)
(206) 624-7930
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last
report.)
Indicate by check mark whether the registrant (1) has filed all
reports
required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12
months (or for such shorter
period that the registrant was required to file such reports),
and (2) has
been subject to such filing
requirements for the past 90 days.
(1) Yes X . No .
(2) Yes X . No .
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the
issuer's classes of
common stock, as of the
latest practicable date.
Title of class:
at
February 1, 2000
Common stock, $1.00 par value
52,318,307
shares
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART I
Item 1. Financial Statements
The Consolidated Financial Statements of Washington
Federal, Inc. and
Subsidiaries
filed as a part of the report are as follows:
Consolidated Statements of Financial Condition
as of December 31, 1999 and September 30, 1999 . . . .
. . . . .
. Page 3
Consolidated Statements of Operations for the three
months ended December 31, 1999 and 1998. . . . . . .
. . Page 4
Consolidated Statements of Cash Flows for the
three months ended December 31, 1999 and 1998 . . . .
. . . .
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 11
Item 2. Changes in Securities. . . . . . . . . . . ..
. . . . .
. Page 11
Item 3. Defaults upon Senior Securities. . . . . . . ..
. . . . .
. Page 11
Item 4. Submission of Matters to a Vote of Stockholders ..
. . . . .
. . . Page 11
Item 5. Other Information . . . . . . . . . . . . ..
. . . .
Page 11
Item 6. Exhibits and Reports on Form 8-K . . . . . . ..
. . . . .
. Page 11
Signatures . . . . . . . . . . . . . . . . .
.Page 12
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
December 31, 1999 September 30, 1999
(In thousands, except per share
data)
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . $ 42,367
$ 25,037
Available-for-sale securities, including mortgage-backed
securities of
$1,005,431 . . 1,125,043 1,169,917
Held-to-maturity securities, including mortgage-backed securities
of $291,874.
. . 313,350 324,752
Loans receivable . . . . . . . . . . . . . . . . . 4,485,483
4,378,728
Interest receivable. . . . . . . . . . . . . . . . 36,330
36,521
Premises and equipment, net. . . . . . . . . . . . 50,363
50,110
Real estate held for sale. . . . . . . . . . . . . 17,025
16,679
FHLB stock . . . . . . . . . . . . . . . . . . . . 110,833
108,844
Costs in excess of net assets acquired . . . . . . 46,070
47,583
Other assets . . . . . . . . . . . . . . . . . . . 6,351
5,332
$6,233,215
$6,163,503
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Customer accounts
Savings and demand accounts. . . . . . . . . . $3,334,259
$3,291,857
Repurchase agreements with customers . . . . . 93,154
87,645
3,427,413 3,379,502
FHLB advances. . . . . . . . . . . . . . . . . . . 950,000
1,454,000
Other borrowings, primarily securities sold under agreements to
repurchase .
1,020,372 454,257
Advance payments by borrowers for taxes and insurance. . . . .
10,771
26,107
Federal and state income taxes . . . . . . . . . . 62,104
52,504
Accrued expenses and other liabilities . . . . . . 46,866
47,110
5,517,526
5,413,480
Stockholders' equity
Common stock, $1.00 par value, 100,000,000 shares authorized;
62,218,218 and 62,191,540 shares issued; 52,476,717 and
54,232,061 shares outstanding . . . . . . . . 62,218
62,192
Paid-in capital. . . . . . . . . . . . . . . . . . 785,358
785,031
Valuation adjustment for available-for-sale securities, net of
taxes . . . .
(8,000) 5,000
Treasury stock, at cost; 9,741,501 and 7,959,479 shares. . . .
( 182,700)(
146,186)
Retained earnings. . . . . . . . . . . . . . . . . 58,813
43,986
715,689
750,023
$6,233,215
$6,163,503
CONSOLIDATED FINANCIAL HIGHLIGHTS
Stockholders' equity per share. . . . . . . . . . $ 13.64
$ 13.83
Stockholders' equity to total assets. . . . . . . 11.48%
12.17%
Loans serviced for others . . . . . . . . . . . . $ 44,614
$ 48,198
Weighted average rates at period end
Loans and mortgage-backed securities. . . . . . 7.70%
7.66%
Investment securities*. . . . . . . . . . . . . 8.11%
8.03%
Combined rate on loans, mortgage-backed securities and
investment
securities . 7.72% 7.68%
Customer accounts . . . . . . . . . . . . . . . 4.84%
4.71%
Borrowings. . . . . . . . . . . . . . . . . . . 5.56%
5.40%
Combined cost of customer accounts and borrowings. . . . .
5.10%
4.96%
Interest rate spread. . . . . . . . . . . . . . 2.62%
2.72%
*Includes municipal bonds at tax equivalent yields
WASHINGTON FEDERAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Quarter Ended
December 31,
1999 1998
(Dollars in thousands, except per
share data)
INTEREST INCOME
Loans . . . . . . . . . . . . . . . . . . . . . . $91,943
$89,952
Mortgage-backed securities. . . . . . . . . . . . 23,894
18,866
Investment securities . . . . . . . . . . . . . .
4,452
5,575
120,289 114,393
INTEREST EXPENSE
Customer accounts . . . . . . . . . . . . . . . . 41,286
40,744
FHLB advances and other borrowings. . . . . . . . 26,867
21,096
68,153 61,840
Net interest income . . . . . . . . . . . . . . . 52,136
52,553
Provision for loan losses . . . . . . . . . . . . ---
179
Net interest income after provision for loan losses. . . . .
52,136
52,374
OTHER INCOME
Gain on sale of securities. . . . . . . . . . . . 598
---
Other . . . . . . . . . . . . . . . . . . . . . . 1,331
3,427
1,929 3,427
OTHER EXPENSE
Compensation and fringe benefits. . . . . . . . . 6,746
6,635
Regulatory assessments. . . . . . . . . . . . . . 480
434
Occupancy expense . . . . . . . . . . . . . . . . 1,010
984
Other . . . . . . . . . . . . . . . . . . . . . . 3,709
3,417
11,945 11,470
Gain on real estate owned, net. . . . . . . . . .
393
48
Income before income taxes. . . . . . . . . . . . 42,513
44,379
Income taxes. . . . . . . . . . . . . . . . . . . 15,092
16,061
NET INCOME. . . . . . . . . . . . . . . . . . . . $27,421
$28,318
PER SHARE DATA
Basic earnings per share. . . . . . . . . . . . . $ .51
$ .50
Diluted earnings per share. . . . . . . . . . . . $
.51
$ .50
Cash dividends. . . . . . . . . . . . . . . . . . $ .24
$ .22
Weighted average number of shares outstanding,
including dilutive stock options. . . . . . . .
54,073,257
56,563,867
Return on average assets. . . . . . . . . . . . . 1.77%
2.02%
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Quarter Ended December 31,
1999 1998
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income. . . . . . . . . . . . . . . . . . . . $ 27,421
$ 28,318
Adjustments to reconcile net income to net cash provided by
operating
activities
Amortization of fees, discounts and premiums, net. . . . .
( 4,595) (
7,915)
Amortization of costs in excess of net assets acquired . .
1,513
1,514
Depreciation. . . . . . . . . . . . . . . . . . 570
570
Gains on investment securities and real estate held for sale. .
. . . . .
(991) ( 48)
Decrease in accrued interest receivable . . . . 191
853
Increase in income taxes payable. . . . . . . . 16,600
16,053
FHLB stock dividends. . . . . . . . . . . . . . ( 1,989)
( 1,974)
Decrease (increase) in other assets . . . . . . (1,019)
875
Decrease in accrued expenses and other liabilities . . . .
( 244)
(1,142)
Net cash provided by operating activities . . . . 37,457
37,104
CASH FLOWS FROM INVESTING ACTIVITIES
Loans and contracts originated
Loans on existing property. . . . . . . . . . . (166,510)
( 246,594)
Construction loans. . . . . . . . . . . . . . . (115,858)
( 86,705)
Land loans. . . . . . . . . . . . . . . . . . . ( 25,069)
( 31,357)
Loans refinanced. . . . . . . . . . . . . . . . ( 6,389)
( 66,723)
(313,826)
(431,379)
Savings account loans originated. . . . . . . . . ( 611)
( 1,141)
Loan principal repayments . . . . . . . . . . . . 242,955
470,512
Decrease in undisbursed loans in process. . . . . ( 33,053)
( 18,960)
Loans purchased . . . . . . . . . . . . . . . . . ( 1,077)
( 62)
Purchase of available-for-sale securities . . . .
( 20,232)
(201,597)
Principal payments and maturities of available-for-sale
securities. . . . .
33,859
88,427
Sales of available-for-sale securities. . . . . .
12,239
---
Principal payments and maturities of held-to-maturity securities.
. . . . .
11,545 38,431
Proceeds from sale of real estate held for sale . 2,962
3,181
Premises and equipment purchased, net . . . . . .
( 823)
(1,111)
Net cash used by investing activities . . . . . . (66,062)
(53,699)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in customer accounts . . . . . . . . 47,911
104,331
Repayment of long-term borrowings . . . . . . . . (200,000)
---
Net increase (decrease) in short-term borrowings. 262,115
(16,403)
Proceeds from exercise of common stock options. . 353
194
Dividends . . . . . . . . . . . . . . . . . . . . (12,594)
( 12,156)
Treasury stock purchases. . . . . . . . . . . . . (36,514)
(14,473)
Decrease in advance payments by borrowers for taxes and insurance
. . . . . (
15,336) ( 14,545)
Net cash provided by financing activities . . . .
45,935
46,948
Increase in cash. . . . . . . . . . . . . . . . . 17,330
30,353
Cash at beginning of period . . . . . . . . . . . 25,037
22,215
Cash at end of period . . . . . . . . . . . . . . $ 42,367
$ 52,568
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Non-cash investing activities
Real estate acquired through foreclosure. . . . $ 2,915 $
1,820
Cash paid during the period for
Interest. . . . . . . . . . . . . . . . . . . . 68,927
64,808
Income taxes. . . . . . . . . . . . . . . . . . ---
---
NOTE A - Basis of Presentation
The consolidated unaudited interim financial statements included
in this
report have been prepared by
Washington Federal, Inc. (Company). In the opinion of
management, all
adjustments (consisting only
of normal recurring accruals) necessary for a fair presentation
are reflected
in the interim financial
statements. The September 30, 1999 Consolidated Statement of
Financial
Condition was derived from
audited financial statements.
NOTE B - Cash Dividend Paid
Dividends per share increased to 24 cents for the quarter ended
December 31,
1999 compared with 22
cents for the same period one year ago. On January 28, 2000 the
Company paid
its 68th consecutive
quarterly cash dividend.
NOTE C - Comprehensive Income
The provisions of Statement of Financial Accounting Standards
(SFAS) No.
130,"Reporting
Comprehensive Income" require that comprehensive income and its
components be
disclosed in the
financial statements. The Company's comprehensive income includes
all items
which comprise net
income plus the unrealized holding gains or losses on
available-for-sale
securities. In accordance with
the provisions of SFAS No. 130, the Company's total comprehensive
income for
the quarters ending
December 31, 1999 and December 31, 1998 totaled $14,421,000 and
$23,318,000,
respectively. The
difference between the Company's net income and total
comprehensive income for
these periods equals
the change in the net unrealized gain and loss on securities
available-for-sale during the applicable
periods.
Note D - Earnings per Share
The provisions of SFAS No. 128, "Earnings per Share" require the
Company to
present both basic and
diluted EPS on the face of its statements of operations. The
following table
provides a reconciliation
of the numerators and denominators of the basic and diluted
computations:
Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic EPS
Income available to common
stockholders 27,421,000 53,703,256
.51
Diluted EPS
Income available to common stockholders
plus assumed conversions27,421,000 54,073,257
.51
GENERAL
Washington Federal, Inc. (the Company) is a savings and loan
holding company.
The Company's
primary operating subsidiary is Washington Federal Savings (the
Association).
YEAR 2000
The year 2000 arrived without any business complications. The
Company will
continue to monitor
systems for any possible problems that may occur as the year
proceeds.
INTEREST RATE RISK
The Company accepts a high level of interest rate volatility as a
result of
its policy to originate fixed-
rate single family home loans which are longer-term than the
short-term
characteristics of its liabilities
of customer accounts and borrowed money. At December 31, 1999
the Company had
a negative one
year maturity gap of approximately 49% of total assets.
The interest rate spread declined to 2.62% at December 31, 1999
from 2.72% at
September 30, 1999.
The decline was, in large part, due to a narrowing of the
interest rate spread
as the Federal Reserve
raised short-term interest rates during the quarter. During this
phase of the
interest rate cycle, the
Company chose to leverage the balance sheet and increase its
asset size. As a
result, FHLB advances
and other borrowed money increased to an equivalent of 31.6% of
total assets
at December 31, 1999
compared to 31.0% of total assets at September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company s net worth at December 31, 1999 was $715,689,000 or
11.5% of
total assets. This is
a decrease of $34,334,000 from September 30, 1999, when net worth
was
$750,023,000 or 12.2% of
total assets. The $34,334,000 decrease in the Company's net worth
includes
$12,594,000 of cash
dividends paid, stock repurchases of $36,514,000 and a
$13,000,000 reduction
in the valuation reserve
for available-for-sale securities. Net worth was increased by the
$27,421,000
generated from net
income and $353,000 of proceeds received from the exercise of
common stock
options. During the
quarter ended December 31, 1999, 1,782,000 shares of common stock
were
repurchased at an average
price of $20.49 under the Company's ongoing common stock
repurchase program.
During the quarter
ended December 31, 1999, the Board of Directors authorized an
additional
repurchase of 2.6 million
shares, or approximately 5% of outstanding Washington Federal,
Inc. common
stock. This leaves a
total of 3.4 million shares currently authorized by the Board of
Directors as
available for repurchase.
The Company's percentage of net worth to total assets is among
the highest in
the nation and the
Association's regulatory capital ratios are 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 customer deposit increases.
The Company s cash and investment securities amounted to
$183,455,000, a
$16,665,000 increase from
a quarter ago.
The minimum liquidity levels of the Association are governed by
the
regulations of the OTS. Liquidity
is defined as the ratio of average cash and eligible unpledged
investment
securities and mortgage-backed
securities to the sum of average withdrawable savings plus
short-term (one
year) borrowings.
Currently, the Association is required to maintain total
liquidity at four
percent. At December 31,
1999, total liquidity was 9.55%.
CHANGES IN FINANCIAL POSITION
Available-for-sale and held-to-maturity securities. The Company
purchased
$10,232,000 of
mortgage-backed securities and $10,000,000 of investment
securities during the
first quarter of fiscal
2000, all of which have been categorized as available-for-sale.
As of December
31, 1999, the Company
had unrealized losses of $8,000,000 on available-for-sale
securities, net of
tax, which are recorded as
part of stockholders' equity.
Loans receivable. Loans receivable increased 2% during the
quarter to
$4,485,483,000 at December
31, 1999 from $4,378,728,000 at September 30, 1999.
The Company measures loans that will not be repaid in accordance
with their
contractual terms using
a discounted cash flow methodology or the fair value of the
collateral for
certain loans. Smaller balance
loans are excluded with limited exceptions. At December 31, 1999,
the
Company's recorded investment
in impaired loans was $6,411,000, of which $5,846,000 had
allocated reserves
of $2,481,000. The
average balance of impaired loans during the quarter was
$7,483,000 and
interest income(cash received)
from impaired loans was $89,000.
Costs in excess of net assets acquired. The Company periodically
monitors
these assets for potential
impairment of which there was none at December 31, 1999. The
Company will
continue to evaluate
these assets and, if appropriate, provide for any diminuition in
value.
Customer accounts. Customer accounts increased $47,911,000, or
1%, to
$3,427,413,000 at
December 31, 1999 compared to $3,379,502,000 at September 30,
1999.
FHLB advances and other borrowings. Total borrowings increased to
$1,970,372,000. See Interest
Rate Risk above.
RESULTS OF OPERATIONS
Net interest income decreased $417,000 (1%) to $52,136,000 for
the December
1999 quarter from
$52,553,000 one year ago. This decrease was primarily due to the
decrease in
the net interest spread
to 2.62% at December 31, 1999 compared to 2.72% at September 30,
1999 and
2.69% at December
31, 1998.
Interest income on loans increased $1,991,000 (2%) to $91,943,000
for the
quarter ended December
1999 from $89,952,000 one year ago. The increase is primarily due
to the
increase in the average
balance of loans from $4,139,661,000 at December 31, 1998 to
$4,432,349,000 at
December 31, 1999.
Average interest rates on loans decreased to 7.89% from 7.93%
one year ago.
Interest income on mortgage-backed securities increased
$5,028,000 (27%) to
$23,894,000 for the
quarter ended December 31, 1999 versus $18,866,000 the same
period one year
ago. The increase is
primarily due to the increase in the balance of mortgage-backed
securities
from $1,071,261,000 at
December 31, 1998 to $1,297,305,000 at December 31, 1999 as the
Company
purchased mortgage-
backed securities to supplement current loan production. The
weighted average
yield of 7.07% at
December 31, 1999 was lower than the 7.24% at December 31, 1998.
Interest on investments decreased $1,123,000 (20%) in the quarter
versus the
year ago quarter. The
weighted average yield increased to 8.11% at December 31, 1999
compared with
7.90% at December
31, 1998, however, combined investment securities and FHLB stock
portfolio
decreased to
$251,921,000 at December 31, 1999 versus $311,147,000 one year
ago.
Interest expense on customer accounts increased $542,000 (1%) to
$41,286,000
for the quarter ended
December 31, 1999 from $40,744,000 for the same period one year
ago. The
increase related to the
increase in customer accounts to $3,427,413,000 at December 31,
1999 from
$3,260,533,000 at
December 31, 1998. The average cost of customer accounts
decreased to 4.84% at
quarter end
compared to 4.99% one year ago.
Interest on FHLB advances and other borrowings increased
$5,771,000 (27%) to
$26,867,000 for the
December 1999 quarter compared to $21,096,000 for the same
quarter one year
ago. The increase was
partially due to the increase in borrowings from $1,561,916,000
at December
31, 1998 to
$1,970,372,000 at December 31, 1999. The average rates paid at
December 31,
1999 increased to
5.56% versus 5.37% at December 31, 1998.
Other income decreased $1,498,000 (44%) for the December 1999
quarter compared
to the December
1998 quarter. The decrease in other income reflected several
non-recurring
transactions during the
December 1998 quarter, the largest of which provided the Company
$1,000,000 of
pre-tax income.
Gains on the sale of available-for-sale securities totaled
$598,000 in the
December 1999 quarter. There
were no investment securities gains in the December 1998 quarter.
RESULTS OF OPERATIONS (continued)
Other expense increased $475,000 (4%) for the quarter ended
December 1999
compared to the
December 1998 quarter. Other expense for the December 1999
quarter equaled
.77% of average assets
compared to .82% for the same quarter one year ago, while the
number of staff,
including part-time
employees on a full-time equivalent basis, were 699 and 682 for
the two
periods, respectively.
Income taxes decreased $969,000 (6%) in the December 1999 quarter
due to a
lower taxable income
base. The effective tax rate was 35.5% for December 1999 and
36.2%for the
December 1998 quarter.
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.
Unlike many industrial companies, substantially all of the assets
and
virtually all of the liabilities of
the Company are monetary in nature. As a result, interest rates
have a more
significant impact on the
Company'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.
PART II - Other Information
Item 1. Legal Proceedings
From time to time the Company or its subsidiaries are engaged in
legal
proceedings in the ordinary
course of business, none of which are considered to have a
material impact on
the Company's financial
position or results of operations.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults upon Senior
Securities
Not applicable
Item 4. Submission of Matters
to a Vote of
Stockholders
Not applicable
Item 5. Other information
Not applicable
Item 6. Exhibits and Reports on
Form 8-K
Not applicable
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
February 11, 2000 GUY C. PINKERTON
Chairman and
Chief Executive Officer
/s/ Ronald L. Saper
February 11, 2000 RONALD L. SAPER
Executive Vice-President and
Chief Financial Officer
/s/ Joseph R. Runte
February 11, 2000 JOSEPH R. RUNTE
Vice-President and
Controller