1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
(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, 2003
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.
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(Exact name of registrant as specified in its charter)
Washington 91-1661606
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(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. Yes X No ___
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). 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 MAY 1, 2003
Common stock, $1.00 par value 69,581,868
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EXPLANATORY NOTE
This amendment to Form 10-Q on Form 10-Q/A has been prepared to correct
typographical errors in the Rate / Volume table on page 12 of Form 10-Q.
This amended item is included in Item 2., Management's Discussion and
Analysis of Financial Condition and Results of Operations. This amended
item had no effect on net income or total assets, total liabilities or total
equity as previously reported. No part of the Form 10-Q for March 31, 2003
as previously filed, other than Item 2., was affected by this amendment.
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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
GENERAL
Washington Federal, Inc. ("Company") is a savings and loan holding company.
The Company's primary operating subsidiary is Washington Federal Savings.
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 March 31, 2003,
the Company had a negative one-year maturity gap of approximately 16%
of total assets, compared to a 26% negative one-year maturity gap as of
March 31, 2002. The decrease in interest rate risk is the result of the
Company building its short-term assets.
The interest rate spread decreased to 2.68% at March 31, 2003 from
3.01% at September 30, 2002. The decrease was primarily due to the continued
build up of cash and cash equivalents (totaling $1.3 billion) invested at
overnight rates (1.25%). During this phase of the interest rate cycle
(historically low rates for 30 year fixed-rate loans) the Company chose to
position its balance sheet for increasing rates in the future by building cash
and reducing the amount of loans and mortgage-backed investments. As of
March 31, 2003, the Company had accumulated $1,315,305,000 in cash and cash
equivalents, an increase of $340,152,000 from September 30,2002. This
liquidity, which represents 18% of total assets, provides management with
flexibility in managing interest rate risk going forward.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net worth at March 31, 2003 was $987,969,000, or 13.51% of
total assets. This was an increase of $27,251,000 from September 30, 2002
when net worth was $960,718,000, or 13.00% of total assets. The
increase in the Company's net worth included $74,822,000 from net
income. Net worth was reduced by $29,076,000 of cash dividends paid and
an $11,000,000 decrease in accumulated other comprehensive income. During
the six months ended March 31, 2003, 510,070 shares were repurchased under
the Company's ongoing common stock repurchase program at an average
price of $19.67, which left a total of 2.81 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 is over three times the minimum required under
Office of Thrift Supervision 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, de novo expansion and increased customer deposits.
The Company's cash and investment securities amounted to $1,578,822,000,
a $486,252,000 increase from September 30, 2002. This increase is the
result of higher than normal repayment levels on loans and mortgage-
backed securities during the first six months of fiscal 2003, stemming
from record low mortgage rates.
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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
Management has elected to keep these funds invested short term to take
advantage of expected rising interest rates in the future (see Interest
Rate Risk above).
CHANGES IN FINANCIAL CONDITION
Available-for-sale and held-to-maturity securities: Available-for-sale
securities decreased $64,013,000 or 7.0% during the six months ended
March 31, 2003, due to unusually high prepayments, resulting from
reduced interest rates on mortgage loans and the underlying collateral
for mortgage-backed securities. The Company purchased $229,995,000 and
$50,000,000 of available-for-sale and held-to-maturity investment
securities, respectively, during the six months ended March 31, 2003.
As of March 31, 2003, the Company had unrealized gains on available-for-sale
securities of $45,000,000, net of tax, which were recorded as part of
stockholders' equity.
Loans receivable and securitized assets subject to repurchase: During the
six months ended March 31, 2003, the combined total of loans receivable and
securitized assets subject to repurchase decreased 7.0% to $4,694,033,000
compared to $5,047,964,000 at September 30,2002. The decrease resulted from
Management's unwillingness to aggressively compete during this period of
increased refinancing activity caused by historically low home mortgage rates.
Non-performing assets: Non-performing assets decreased 17.1% during the six
months ended March 31, 2003 to $28,080,000 from $33,876,000 at September 30,
2002.
Costs in excess of net assets acquired: Costs in excess of fair value of net
assets acquired in business combinations are reviewed at least annually to
determine that no impairment of the assets has occured; there was no
impairment at March 31, 2003. The Company will continue to evaluate these
assets and, if appropriate, provide for any diminution in value.
Customer accounts: Customer accounts decreased $89,574,000, or 2.0%, to
$4,432,348,000 at March 31, 2003 compared with $4,521,922,000 at September
30, 2002, as a result of the low interest rate environment for deposits.
FHLB advances and other borrowings: Total borrowings remained unchanged at
$1,750,000,000 during the six months ending March 31, 2003.
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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
Net Income: The quarter ended March 31, 2003 produced net income of
$37,704,000 compared $35,759,000 for the same quarter one year ago,
a 5.4% increase. Net income for the six months ended March 31, 2003
was $74,822,000 compared to $71,144,000 for the six months ended
March 31, 2002, a 5.2% increase. Net income for the three and
six months ended March 31, 2003 increased primarily as a result of
reduced operating expenses and increased other income.
Net Interest Income: The largest component of the Company's
earnings is net interest income, which is the difference between
the interest and dividends earned on loans and other investments
and the interest paid on customer deposits and borrowings. Net
interest income is impacted primarily by two factors; first, the
volume of earning assets and liabilities and second, the rate
earned on those assets or the rate paid on those liabilities.
The following table sets forth certain information explaining
changes in interest income and interest expense 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) and (2) changes in rate (changes in rate
multiplied by old 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.
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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
Rate / Volume Analysis:
Quarter Ended Six Months Ended
March 31,2003 March 31, 2003
Volume Rate Total Volume Rate Total
------- ------- ------- ------- ------- --------
<c> <c> <c> <c> <c> <c>
Interest Income:
Loan Portfolio $(9,029) $(2,944) $ (11,973) $(17,608) $(5,201) $ (22,809)
Mortgaged-backed securities (5,169) 2,497 (2,672) (10,622) 5,761 (4,861)
Investments securities
and cash equivalents (1) 5,981 (3,524) 2,457 13,666 (7,470) 6,196
------- ------- ------- ------- ------- --------
All interest-earning assets (8,217) (3,971) (12,188) (14,564) (6,910) (21,474)
Interest Expense:
Customer Accounts (113) (10,307) (10,420) 1,342 (24,955) (23,613)
FHLB advances and other
borrowings 2,554 (843) 1,711 4,717 (1,467) 3,250
------- ------- ------- ------- ------- -------
All interest-bearing libilities 2,441 (11,150) (8,709) 6,059 (26,422) (20,363)
Change in net interest income $(10,658) $ 7,179 $ (3,479) $(20,623) $19,512 $(1,111)
======= ======== ======== ======= ======= =======
(1) Includes dividends on FHLB stock
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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
Interest income for the six month period and quarter ended March 31, 2003
benefited from additional accretion of discounts on mortgage-back securities
and deferred loan fees of approximately $11,000,000 and $5,000,000,
respectively, caused from the record prepayment activity experienced during
the periods. If prepayments return to historic levels, this additional
accretion will subside.
The Company provided $150,000 for loan losses during the quarter,
compared to $2,000,000 for the same quarter last year. For the six
months ended March 31, 2003, the total provision was $1,400,000,
compared to $4,000,000 for the same period one year ago. This decrease
was due to the continued decline in the amount of the loan portfolio,
combined with strong asset quality indicators. Non-performing assets
amounted to $28,080,000 or .38% of total assets at March 31, 2003 compared
to $36,974,000 or .53% of total assets one year ago. Delinquencies on
permanent loans have decreased from $28,600,000 at March 31, 2002 to
$24,400,000 at March 31, 2003. These factors, with others, resulted
in a decrease in net charge-offs for the quarter ended March 31, 2003
by $193,000 over the comparable period in fiscal 2002. Weak economic
conditions, including high unemployment, continue in the Company's primary
markets.
Other Income: The quarter ended March 31, 2003 produced total other income
of $5,604,000 compared to $1,549,000 for the same quarter one year ago, a
261.8% increase. Total other income for the six months ended March 31, 2003
was $7,797,000 compared to $4,530,000 for the six months ended March 31, 2002,
a 72.1% increase. Total other income for the quarter and six months ended
March 31, 2003 increased primarily as a result of the $3,382,000 gain on sale
of real estate. There were no sales of securities during the first six months
of the current fiscal year.
Other Expenses: The quarter ended March 31, 2003 produced total other expenses
of $12,426,000 compared to $13,124,000 for the same quarter one year ago, a
5.3% decrease. Total other expenses for the six months ended March 31, 2003
was $24,636,000 compared to $26,028,000 for the six months ended March 31, 2002,
a 5.3% decrease. Total other expenses for the quarter and six months ended
March 31, 2003 equaled .68% of average assets, compared to .75% for the same
periods one year ago. The number of staff, including part-time employees on
a full-time equivalent basis, was 724 at both March 31, 2003 and March 31, 2002,
however, compensation expense decreased $1,281,000 primarily due to the decline
in bonus compensation.
Taxes: Income taxes increased $1,061,000 or 5.5% and $2,004,000 or 5.2% for the
quarter and six month periods ended March 31, 2003, respectively, when compared
to the same periods one year ago, due to a higher taxable income base. The
effective tax rate was 35.25% for the six month period ended March 31, 2003
and the same period one year ago.
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
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/ Brent J. Beardall
May 15, 2003 --------------------------------------
BRENT J. BEARDALL
Vice President Finance and
Controller (principal financial and
accounting officer)
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CERTIFICATIONS
I, Roy M. Whitehead, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Washington
Federal, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statements of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented
in this quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and we have:
(a) Designed such disclosure controls and procedures to ensure
that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) Evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the "Evaluation
Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the Registrant's auditors
and to the audit committee of the Registrant's board of directors
(or persons performing the equivalent function):
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the
Registrant's ability to record, process, summarize and report
financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls;
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Registrant's internal controls; and
6. The Registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ Roy M. Whitehead
Date: May 15, 2003 -----------------------------------
ROY M. WHITEHEAD
Vice Chairman, President and Chief
Executive Officer
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I, Brent J. Beardall, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Washington
Federal, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statements of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented
in this quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and we have:
(a) Designed such disclosure controls and procedures to ensure
that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) Evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the "Evaluation
Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the Registrant's auditors
and to the audit committee of the Registrant's board of directors
(or persons performing the equivalent function):
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the
Registrant's ability to record, process, summarize and report
financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls;
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Registrant's internal controls; and
6. The Registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ Brent J. Beardall
Date: May 15, 2003 -----------------------------------
BRENT J. BEARDALL
Vice President Finance and
Controller (principal financial
and accounting officer)
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