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 June 30, 2000
[ ] 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 June 30, 2000 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:
JULY 31, 2000
Common stock, $1.00 par value 52,065,944
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 June 30, 2000 and September 30, 1999
Page 3
Consolidated Statements of Operations for the three
and nine months ended June 30, 2000 and 1999
Page 4
Consolidated Statements of Cash Flows for the
nine months ended June 30, 2000 and 1999
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)
June 30, 2000 September 30,
1999
(In thousands, except per share data)
ASSETS
Cash $ 27,363 $ 25,037
Available-for-sale securities 1,186,028 1,169,917
Held-to-maturity securities 301,152 324,752
Loans receivable 4,780,987 4,378,728
Interest receivable 38,186 36,521
Premises and equipment, net 50,600 50,110
Real estate held for sale 17,118 16,679
FHLB stock 114,444 108,844
Costs in excess of net assets acquired 43,042 47,583
Other assets 6,481 5,332
$6,565,401 $6,163,503
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Customer accounts
Savings and demand accounts $3,312,221 $3,291,857
Repurchase agreements with customers 88,336 87,645
3,400,557 3,379,502
FHLB advances 904,000 1,454,000
Other borrowings, primarily securities sold under agreements to repurchase
1,415,127 454,257
Advance payments by borrowers for taxes and insurance 16,179 26,107
Federal and state income taxes 45,881 52,504
Accrued expenses and other liabilities 51,390 47,110
5,833,134 5,413,480
Stockholders' equity
Common stock, $1.00 par value, 100,000,000 shares authorized;
62,260,705 and 62,191,540 shares issued; 52,059,803 and
54,232,061 shares outstanding 62,261 62,192
Paid-in capital 785,335 785,031
Valuation adjustment for available-for-sale securities, net of taxes (11,000)
5,000
Treasury stock, at cost; 10,200,902 and 7,959,479 shares ( 190,504)
( 146,186)
Retained earnings 86,175 43,986
732,267 750,023
$6,565,401 $6,163,503
CONSOLIDATED FINANCIAL HIGHLIGHTS
Stockholders' equity per share $ 14.07 $ 13.83
Stockholders' equity to total assets 11.15% 12.17%
Loans serviced for others $ 39,992 $ 48,198
Weighted average rates at period end
Loans and mortgage-backed securities 7.86% 7.66%
Investment securities* 7.83 8.03
Combined rate on loans, mortgage-backed securities and investment
securities
7.86 7.68
Customer accounts 5.32 4.71
Borrowings 6.30 5.40
Combined cost of customer accounts and borrowings 5.72 4.96
Interest rate spread 2.14 2.72
*Includes municipal bonds at tax equivalent yields
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Quarter Ended June 30, Nine Months Ended June 30,
2000
1999 2000 1999
(In thousands, except per share data)
INTEREST INCOME
Loans $ 97,195 $ 87,458 $282,606 $264,732
Mortgage-backed securities 23,907 20,348 71,544 60,230
Investment securities 4,209 4,471 13,023 14,969
125,311
112,277 367,173 339,931
INTEREST EXPENSE
Customer accounts 43,500 39,544 126,014 120,032
FHLB advances and other borrowings 32,990 19,842 88,970 61,628
76,490
59,386 214,984 181,660
Net interest income 48,821 52,891 152,189 158,271
Provision for loan losses ---- 301 --- 684
Net interest income after provision for loan losses 48,821 52,590
152,189 157,587
OTHER INCOME
Gain on sale of securities 1,110 1,403 2,826 2,747
Other 1,585 1,626 4,382 7,194
2,695
3,029 7,208 9,941
OTHER EXPENSE
Compensation and fringe benefits 6,727 6,659 20,225 20,138
Federal insurance premiums 174 461 831 1,361
Occupancy expense 1,009 967 3,095 2,975
Other 3,406 3,421 11,340 10,565
11,316
11,508 35,491 35,039
Gain on real estate owned, net 147 10 754 104
Income before income taxes 40,347 44,121 124,660 132,593
Income taxes 14,059 15,373 43,943 47,000
NET INCOME $ 26,288 $ 28,748 $ 80,717 $ 85,593
PER SHARE DATA
Basic earnings per share $ .51 $ .53 $ 1.53 $ 1.54
Diluted earnings per share $ .50 $ .52 $ 1.52 $ 1.53
Cash dividends $ .25 $ .23 $ .73 $ .67
Weighted average number of shares outstanding,
including dilutive stock options 52,546,731 55,219,596 53,092,594
56,053,157
Return on average assets 1.63% 2.01% 1.70% 2.01%
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
June 30,
2000
1999
(In
thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 80,717 $ 85,593
Adjustments to reconcile net income to net cash provided by operating activities
Amortization of fees, discounts and premiums, net (12,695) (20,315)
Amortization of costs in excess of net assets acquired 4,541 4,542
Depreciation 1,710 1,710
Gain on investment securities and real estate held for sale (3,580)
(2,851)
Decrease (increase) in accrued interest receivable (1,665) 2,226
Increase in income taxes payable 2,377 2,475
FHLB stock dividends (5,600) ( 5,841)
Decrease (increase) in other assets (1,149) 3,896
Increase (decrease) in accrued expenses and other liabilities 4,280
(1,406)
Net cash provided by operating activities 68,936 70,029
CASH FLOWS FROM INVESTING ACTIVITIES
Loans and contracts originated
Loans on existing property (661,810) (768,425)
Construction loans (352,180) (303,742)
Land loans ( 80,937) ( 73,792)
Loans refinanced ( 19,434) (148,717)
(1,114,361) (1,294,676)
Savings account loans originated ( 2,324) ( 3,183)
Loan principal repayments 723,361 1,194,042
Increase (decrease) in undisbursed loans in process (4,105) 15,410
Loans purchased ( 1,499) ( 452)
Purchase of available-for-sale securities (169,574) (423,749)
Principal payments and maturities of available-for-sale securities
97,879 262,033
Sales of available-for-sale securities 34,467 22,726
Purchase held-to-maturity securities (4,010) ---
Principal payments and maturities of held-to-maturity securities
27,992 104,128
Proceeds from sale of real estate held for sale 8,240 10,082
Premises and equipment purchased, net (2,200) (2,938)
Net cash used by investing activities (406,134) (116,577)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in customer accounts 21,055 204,243
Decrease (increase) in short-term borrowings 610,870 (62,735)
Repayments of long-term borrowings (200,000) ---
Proceeds from exercise of common stock options 755 972
Proceeds from employee stock ownership plan 3,573 669
Treasury stock purchased (48,485) (43,808)
Dividends ( 38,316) ( 36,753)
Decrease in advance payments by borrowers for taxes and insurance (
9,928) ( 10,874)
Net cash provided by financing activities 339,524 51,714
Increase in cash 2,326 5,166
Cash at beginning of period 25,037 22,215
Cash at end of period $ 27,363 $ 27,381
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Noncash investing activities
Real estate acquired through foreclosure $ 7,925 $ 12,768
Cash paid during the period for
Interest 214,021 184,364
Income taxes 42,518 44,022
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 September 30, 1999 Consolidated Statement of Financial
Condition
was derived from audited financial statements.
NOTE B - Cash Dividend Paid
Dividends per share increased to 25 cents for the quarter ended June 30, 2000
compared with 23 cents for the same period one year ago. On July 28, 2000 the
Company paid its 70th consecutive quarterly cash dividend.
NOTE C - Comprehensive Income
On October 1, 1998, the Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". The
standard requires 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 ended June 30, 2000 and
June
30, 1999 totaled $29,288,000 and $13,748,000, respectively. The total
comprehensive income for the nine months ended June 30, 2000 and June 30, 1999
totaled $64,717,000 and $60,593,000, respectively. The difference between the
Company's net income and total comprehensive income equals the change in the
net
unrealized gain or loss on securities available-for-sale during the applicable
periods.
NOTE D - Earnings per Share
SFAS No. 128, "Earnings per Share"(SFAS No. 128)" was issued in February, 1997.
Under SFAS No. 128, the Company is required to present both basic and diluted
EPS
on the face of its statement 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 $80,717,000 52,837,191 $1.53
Dilutive effective of common stock options 255,403
Diluted EPS $80,717,000 53,092,594 $1.52
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).
INTEREST RATE RISK
The Company 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 June 30, 2000 the Company had a negative one year maturity
gap of approximately 45% of total assets.
The interest rate spread declined to 2.14% at June 30, 2000 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 interest rates four times during the last
nine months. 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 35.3% of total assets at
June 30, 2000, compared to 31.0% of total assets at September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net worth at June 30, 2000 was $732,267,000 or 11.2% of total
assets. This is a decrease of $17,756,000 from September 30, 1999 when net
worth
was $750,023,000 or 12.2% of total assets. The decrease in the Company's net
worth
included $38,316,000 of cash dividends paid, $16,000,000 of reduction in the
after-tax market valuation of available-for-sale securities and stock
repurchases
of $48,485,000 during the nine months ended June 30, 2000. Net worth increased
by
$80,717,000 from net income and $4,328,000 of proceeds received from the
exercise
of common stock options and the purchase of stock by the Employee Stock
Ownership
Plan(ESOP). During the nine months ended June 30, 2000, 2,464,022 shares of
common
stock were repurchased at an average price of $19.68 under the Company's
ongoing
common stock repurchase program. During the quarter ended December 31, 1999,
the
Board of Directors authorized an additional 2,600,000 shares available for
repurchase. This leaves a total of 2.9 million shares available for repurchase
under all authorizations as of June 30, 2000.
The Company's percentage of net worth to total assets is among the highest in
the
nation and is approximately 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 $170,490,000, a
$3,700,000
increase from nine months ago.
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 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 June
30,
2000, total liquidity was 5.90%.
CHANGES IN FINANCIAL CONDITION
Available-for-sale and held-to-maturity securities. The Company purchased
$139,574,000 of mortgage-backed securities and $30,000,000 of investment
securities during the nine month period, all of which were categorized as
available-for-sale. The Company purchased $4,010,000 of investment securities
during the nine month period which were categorized as held-to-maturity. As of
June 30, 2000, the Company had unrealized losses on available-for-sale
securities
of $11,000,000, net of tax, which were recorded as part of stockholders'
equity.
Loans receivable. Loans receivable increased (9%) during the nine month period
to $4,780,987,000 at June 30, 2000 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 June 30, 2000, the Company's recorded investment in impaired
loans
was $9.1 million which had allocated reserves of $2.1 million. Loans of $5.3
million did not require reserves. The average balance of impaired loans during
the
quarter was $13.3 million and interest income (cash received) from impaired
loans
was $76,000. For the nine months ended June 30, 2000 the average amount of
impaired loans was $10.9 million and interest income (cash received) from
impaired
loans was $207,000.
Costs in excess of net assets acquired. The Company periodically monitors
costs in excess of net assets acquired for potential impairment of which there
was
none at June 30, 2000. The Company will continue to evaluate these assets and,
if
appropriate, provide for any diminution in value of these assets.
Customer accounts. Customer accounts increased $21,055,000, or 1% to
$3,400,557,000 at June 30, 2000 compared with $3,379,502,000 at September
30,
1999.
FHLB advances and other borrowings. Total borrowings increased to
$2,319,127,000. See Interest Rate Risk above.
RESULTS OF OPERATIONS
Net interest income decreased $4,070,000 (8%) to $48,821,000 for the June 2000
quarter from $52,891,000 a year ago, while net interest income decreased
$6,082,000 (4%) to $152,189,000 for the nine months ended June 30, 2000 from
the
$158,271,000 for the same period of 1999. The decrease was primarily due to the
decrease in the net interest spread to 2.14% at June 30, 2000, compared to
2.62%
at December 31, 1999 and 2.78% at June 30, 1999.
Interest income on loans increased $9,737,000 (11%) to $97,195,000 for the
quarter
ended June 30, 2000 from $87,458,000 for the same period one year ago. For
the
nine months ended June 30, 2000 interest on loans increased $17,874,000 (7%) to
$282,606,000 from $264,732,000 for the same period one year ago. The increase
is
primarily due to the increase in the average balance of loans from
$4,154,993,000
for the nine months ended June 30, 1999 to $4,544,548,000 (9%) for the nine
months
ended June 30, 2000. Average interest rates on loans increased to 8.07% at June
30, 2000 from 7.80% one year ago.
Interest income on mortgage-backed securities increased $3,559,000 (17%) to
$23,907,000 for the quarter ended June 30, 2000 versus the $20,348,000 for the
quarter one year ago. Interest on mortgage-backed securities increased
$11,314,000 (19%) to $71,544,000 for the nine months ended June 30, 2000
compared
with the $60,230,000 for the same period one year ago. The average balance of
mortgage-backed securities increased to $1,320,405,000 (20%) for the nine
months
ended June 30, 2000 from $1,098,724,000 for the nine months ended June 30, 1999
as
the Company purchased $139,574,000 in mortgage-backed securities to supplement
current loan production. The weighted average yield of 7.11% at June 30, 2000
was
up from the 7.05% at June 30, 1999.
Interest on investments decreased $262,000 (6%) to $4,209,000 for the quarter
ended
June 30, 2000 versus the $4,471,000 for the same quarter one year ago. Interest
on
investments decreased $1,946,000 (13%) to $13,023,000 for the nine months ended
June 30, 2000 compared with the $14,969,000 for the same period one year ago.
The
average balance of investments decreased to $254,822,000 (12%) for the nine
month
period ended June 30, 2000 from $288,591,000 for the nine month period ended
June
30, 1999. The weighted average yield was 7.83% at June 30, 2000 compared to
8.04%
at June 30, 1999.
Interest expense on customer accounts increased $3,956,000 (10%) to $43,500,000
for
the June 2000 quarter from $39,544,000 for the June 1999 quarter. Interest
expense
on customer accounts increased $5,982,000 (5%) to $126,014,000 for the nine
months
ended June 30, 2000 versus $120,032,000 for the same period one year ago. The
increase related to the increase in average customer accounts from
$3,276,599,000
to $3,406,188,000 (4%) for the nine months ended June 30, 1999 and 2000,
respectively, and to the average cost of customer accounts which increased to
5.32% at June 30, 2000 compared to 4.70% one year ago.
RESULTS OF OPERATION(continued)
Interest on FHLB advances and other borrowings increased $13,148,000 (66%) to
$32,990,000 for the June 2000 quarter compared with the $19,842,000 for the
June
1999 quarter. The nine-month figures increased $27,342,000 (44%) to
$88,970,000
compared with the $61,628,000 for the same period one year ago. The increase
was
partially due to the increase in the average total borrowings from
$1,540,820,000
to $2,035,093,000 (32%) for the nine months ended June 30, 1999 and June
30,
2000, respectively, and to the average cost of borrowings which increased to
6.30% at June 30, 2000 compared with 5.30% at June 30, 1999.
Other income decreased $334,000 (11%) to $2,695,000 for the June 2000 quarter
compared with the $3,029,000 for the June 1999 quarter. Other income decreased
$2,733,000 (27%) to $7,208,000 for the nine months ended June 30, 2000 versus
$9,941,000 for the same period one year ago. Gains on the sale of available
- -for
- -sale securities totaled $1,110,000 and $2,826,000 for the quarter and nine
months
ended June 30, 2000, respectively. Gains on the sale of available-for-sale
securities totaled $1,403,000 and $2,747,000 for the quarter and nine months
ended
June 30, 1999. The decrease in other income resulted from a gain of $600,000 on
the sale of a branch location and several non-recurring transactions that
resulted
in a gain of $1.8 million during the nine months ended June 30, 1999.
Other expense decreased $192,000 (2%) for the quarter ended June 30, 2000
compared
to the June 30, 1999 quarter. Other expense increased $452,000 (1%) for
the
nine months ended June 30, 2000 compared to the same period one year ago.
Other
expense for the quarter and nine months ended June 30, 2000 equaled .70% and
.75%,
respectively, of average assets compared to .80% and .82%, respectively, for
the
same periods one year ago. The number of staff, including part-time employees
on
a full-time equivalent basis, were 686 at June 30, 2000 and 696 at June 30,
1999.
Income taxes decreased $1,314,000 (9%) and $3,057,000 (7%) for the quarter and
nine
months ended June 30, 2000, respectively, when compared to the same period one
year ago. The effective tax rate was 35.25% for the nine month period ended
June
30, 2000 and 35.5% for the same period ended June 30, 1999.
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
August 14, 2000 GUY C.
PINKERTON
Chairman
and
Chief
Executive Officer
/s/
Ronald
L. Saper
August 14, 2000 RONALD L.
SAPER
Executive
Vice
- -President and
Chief
Financial Officer
/s/
Joseph
R. Runte
August 14, 2000 JOSEPH R.
RUNTE
Vice
- -President and
Controll
er
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES