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, 1996
[ ] 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, 1996 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 August 6, 1996
----------------------------- -----------------
Common stock, $1.00 par value 41,508,287 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 June 30, 1996 and September 30, 1995 Page 3
Consolidated Statements of Operations for the three
and nine months ended June 30, 1996 and 1995 Page 4
Consolidated Statements of Cash Flows for the
nine months ended June 30, 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 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
-2-
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
June 30, 1996 September 30, 1995
(In thousands, except per share data)
ASSETS
Cash. . . . . . . . . . . . . . . . . . . . $ 22,099 $ 23,168
Available-for-sale securities . . . . . . . 524,725 361,625
Held-to-maturity securities, market value
of $702,788 at June 30, 1996. . . . . . . 669,339 975,890
Loans receivable. . . . . . . . . . . . . . 3,627,022 3,034,027
Interest receivable . . . . . . . . . . . . 34,355 31,441
Premises and equipment, net . . . . . . . . 40,887 39,930
Real estate held for sale . . . . . . . . . 33,924 32,129
FHLB stock. . . . . . . . . . . . . . . . . 54,312 45,134
Costs in excess of net assets acquired. . . 28,344 31,002
Other assets. . . . . . . . . . . . . . . . 5,581 3,056
--------- ---------
$ 5,040,588 $ 4,577,402
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Customer accounts
Savings and demand accounts . . . . . . $ 2,435,828 $ 2,371,099
Repurchase agreements with customers. . 62,519 74,236
--------- ---------
2,498,347 2,445,335
FHLB advances . . . . . . . . . . . . . . 1,063,500 527,000
Other borrowings, primarily securities
sold under agreements to repurchase . . 809,834 957,087
Advance payments by borrowers for
taxes and insurance . . . . . . . . . . 13,452 23,222
Federal and state income taxes. . . . . . 35,680 32,542
Accrued expenses and other liabilities. . 22,280 16,287
--------- ---------
4,443,093 4,001,473
Stockholders' equity
Common stock, $1.00 par value,
100,000,000 shares authorized;
43,983,766 and 39,943,213 shares issued;
42,246,383 and 38,874,228 shares outstanding 43,984 39,943
Paid-in capital . . . . . . . . . . . . . 405,181 320,920
Valuation adjustment for
available-for-sale securities, net of taxes 4,000 8,000
Treasury stock, at cost;
1,737,383 and 1,068,985 shares. . . . . ( 34,296) ( 22,412)
Retained earnings . . . . . . . . . . . . 178,626 229,478
--------- ---------
597,495 575,929
--------- ---------
$ 5,040,588 $ 4,577,402
CONSOLIDATED FINANCIAL HIGHLIGHTS
Stockholders' equity per share. . . . . . . $ 14.14 $ 13.47
Stockholders' equity to total assets. . . . 11.85% 12.58%
Loans serviced for others . . . . . . . . . $ 118,983 $ 146,360
Weighted average rates at period end
Loans and mortgage-backed securities. . . 8.14% 8.26%
Investment securities*. . . . . . . . . . 7.62 7.69
Combined on loans, mortgage-backed
securities and investment securities. 8.10 8.22
Customer accounts . . . . . . . . . . . . 4.98 5.51
Borrowings. . . . . . . . . . . . . . . . 5.49 5.87
Combined cost of customer accounts
and borrowings. . . . . . . . . . . . 5.20 5.65
Interest rate spread. . . . . . . . . . . 2.90 2.57
*Includes municipal bonds at tax equivalent yields
-3-
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Quarter Ended Nine Months Ended
June 30, June 30,
1996 1995 1996 1995
(In thousands, except per share data)
INTEREST INCOME
Loans. . . . . . . . . . . . . . . $ 78,339 $ 60,774 $224,676 $172,470
Mortgage-backed securities . . . . 17,764 21,257 57,464 62,973
Investment securities. . . . . . . 6,889 5,623 17,776 15,854
------- ------- ------- -------
102,992 87,654 299,916 251,297
INTEREST EXPENSE
Customer accounts. . . . . . . . . 31,320 30,832 98,979 82,117
FHLB advances and other borrowings 25,619 19,382 72,395 51,567
------- ------- ------- -------
56,939 50,214 171,374 133,684
------- ------- ------- -------
Net interest income. . . . . . . . 46,053 37,440 128,542 117,613
Provision for loan losses. . . . . 1,276 612 2,060 1,306
------- ------- ------- -------
Net interest income
after provision for loan losses 44,777 36,828 126,482 116,307
------- ------- ------- -------
OTHER INCOME
Gains on sale of securities. . . . 735 342 1,444 342
Other. . . . . . . . . . . . . . . 1,093 1,316 3,373 3,484
------- ------- ------- -------
1,828 1,658 4,817 3,826
OTHER EXPENSE
Compensation and fringe benefits . 5,113 4,798 14,985 13,748
Federal insurance premiums . . . . 1,389 1,245 4,144 3,721
Occupancy expense. . . . . . . . . 862 731 2,458 2,308
Other. . . . . . . . . . . . . . . 2,250 2,401 6,423 7,638
------- ------- ------- -------
9,614 9,175 28,010 27,415
Gains on real estate owned, net. . 25 71 46 175
------- ------- ------- -------
Income before income taxes . . . . 37,016 29,382 103,335 92,893
Income taxes . . . . . . . . . . . 13,546 10,768 37,802 34,013
------- ------- ------- -------
NET INCOME . . . . . . . . . . . . $ 23,470 $ 18,614 $ 65,533 $ 58,880
======= ======= ======= =======
PER SHARE DATA
Net income . . . . . . . . . . . . $ .55 $ .43 $ 1.53 $ 1.34
Cash dividends . . . . . . . . . . $ .23 $ .21 $ .67 $ .61
Weighted average number of shares
outstanding, including dilutive
stock options. . . . . . . . . . 42,616,068 43,722,408 42,941,858 43,923,028
Return on average assets . . . . . 1.87% 1.75% 1.80% 1.92%
-4-
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
June 30,
1996 1995
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income. . . . . . . . . . . . . . . . . . . . . . . . $ 65,533 $ 58,880
Adjustments to reconcile net income to net cash
provided by operating activities
Amortization of fees, discounts and premiums, net. . . ( 14,809) ( 12,853)
Amortization of costs in excess of net assets acquired 2,658 2,650
Depreciation . . . . . . . . . . . . . . . . . . . . . 1,410 1,428
Gains on sale of investments
and real estate held for sale. . . . . . . . . . . . ( 1,490) ( 517)
Increase in accrued interest receivable. . . . . . . . ( 2,914) ( 5,257)
Increase in income taxes payable . . . . . . . . . . . 6,028 2,074
FHLB stock dividends . . . . . . . . . . . . . . . . . ( 2,678) ( 2,672)
Decrease (increase) in other assets. . . . . . . . . . ( 2,525) 405
Increase in accrued expenses and other liabilities . . 5,993 2,040
------- -------
Net cash provided by operating activities . . . . . . . . 57,206 46,178
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans and contracts originated
Loans on existing property. . . . . . . . . . . . . . . (803,361) (433,749)
Construction loans. . . . . . . . . . . . . . . . . . . (318,505) (250,067)
Land loans. . . . . . . . . . . . . . . . . . . . . . . ( 71,690) ( 66,800)
Loans refinanced. . . . . . . . . . . . . . . . . . . . ( 54,635) ( 14,706)
------- -------
(1,248,191) (765,322)
Savings account loans originated. . . . . . . . . . . . . ( 4,900) ( 3,357)
Loan principal repayments . . . . . . . . . . . . . . . . 640,041 410,990
Increase in undisbursed loans in process. . . . . . . . . 30,973 21,931
Loans purchased . . . . . . . . . . . . . . . . . . . . . ( 786) ( 4,372)
Purchase of available-for-sale securities . . . . . . . . (241,230) (135,651)
Principal payments and maturities of
available-for-sale securities . . . . . . . . . . . . . 123,534 37,613
Sales of available-for-sale securities. . . . . . . . . . 165,719 10,843
Purchases of held-to-maturity securities. . . . . . . . . --- (172,052)
Principal payments and maturities of
held-to-maturity securities . . . . . . . . . . . . . . 91,940 37,029
Proceeds from sale of real estate held for sale . . . . . 970 1,070
Premises and equipment purchased, net . . . . . . . . . . ( 2,367) ( 1,872)
Redemption (purchase) of FHLB stock . . . . . . . . . . . ( 6,500) 35,000
------- -------
Net cash used by investing activities . . . . . . . . . . (450,797) (528,150)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net deposits (withdrawals) on short-term customer accounts 33,268 ( 72,827)
Deposits to long-term customer accounts . . . . . . . . . 509,440 654,684
Withdrawals from long-term customer accounts. . . . . . . (588,674) (599,167)
Interest credited to customer accounts. . . . . . . . . . 98,978 82,117
Net increase in short-term borrowings . . . . . . . . . . 549,247 449,833
Repayments of long-term borrowings. . . . . . . . . . . . (160,000) ---
Proceeds from exercise of common stock options. . . . . . 368 525
Treasury stock purchased. . . . . . . . . . . . . . . . . ( 11,884) ( 9,005)
Dividends . . . . . . . . . . . . . . . . . . . . . . . . ( 28,451) ( 26,552)
Decrease in advance payments by borrowers
for taxes and insurance . . . . . . . . . . . . . . . . ( 9,770) ( 8,248)
------- -------
Net cash provided by financing activities . . . . . . . . 392,522 471,360
------- -------
Decrease in cash. . . . . . . . . . . . . . . . . . . . . ( 1,069) ( 10,612)
Cash at beginning of period . . . . . . . . . . . . . . . 23,168 30,472
------- -------
Cash at end of period . . . . . . . . . . . . . . . . . . $ 22,099 $ 19,860
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Noncash investing activities
Real estate acquired through foreclosure. . . . . . . . $ 2,719 $ 2,536
Securities reclassified to available-for-sale portfolio 215,489 324,904
Cash paid during the period for
Interest. . . . . . . . . . . . . . . . . . . . . . . . 170,573 130,825
Income taxes. . . . . . . . . . . . . . . . . . . . . . 31,775 32,275
-5-
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 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 23 cents for the quarter ended June 30, 1996
compared with 21 cents for the same period one year ago. On July 26, 1996 the
Association paid its fifty-fourth 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. The unrealized gains
on available-for-sale securities at June 30, 1996 was $4,000,000, net of tax.
NOTE D - STOCK REPURCHASE PROGRAM
On March 28, 1996, the Board of Directors of the Company 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 June 30, 1996, 1,737,383 shares had been repurchased, under the initial
stock repurchase program, at an average price of $19.74 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.
NOTE F - SUBSEQUENT EVENT - THE COMPANY'S AGREEMENT AND PLAN OF MERGER
WITH METROPOLITAN BANCORP
On July 11, 1996, the Company entered into an Agreement and Plan of Merger to
acquire Metropolitan Bancorp ("Metropolitan"). Metropolitan had $761 million
of assets, $424 million of deposits and ten offices as of June 30, 1996. Each
of the approximately 3.4 million shares of Metropolitan stock will be exchanged
for Company stock at the ratio of $18 divided by the average Company share
price provided the average price is between $18.00 and $24.50. The acquisition
will be accounted for by the purchase method, and approximately $15 million of
costs in excess of net assets acquired will be recorded and amortized by the
straight-line method over 15 years.
-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, 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 June 30, 1996 the Company had $2,586,796,000
more liabilities subject to repricing in the next year than assets subject to
repricing. This amounted to a negative maturity gap of 51.3% of total assets.
During the past four 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 increase in the interest rate spread to 2.90% from 2.78% at
March 31, 1996 was the second consecutive quarterly increase following declines
in the previous ten quarters. To counter the contraction of the interest rate
spread the Company had utilized some of its borrowing capacity associated with
its strong capital position to expand the balance sheet during this 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 37.2% of total assets at June 30, 1996 compared to 32.4% of total assets at
September 30, 1995, and 12.6% of total assets at September 30, 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net worth at June 30, 1996 was $597,495,000 or 11.9% of total
assets. This is an increase of $21,566,000 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 a 10% increase in assets during
the nine 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 $335,456,000, an
increase of $55,626,000 from nine 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
June 30, 1996, total liquidity was 5.86% 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 $181,230,000 of U.S. government and agency securities and
$60,000,000 of mortgage-backed securities during the nine month period, all of
which were categorized as available-for-sale.
The Company sold $136,116,000 of available-for-sale mortgage-backed securities
and $29,603,000 of available-for-sale investment securities which resulted in
net gains of $1,444,000 during the nine month period ended June 30, 1996. As
of June 30, 1996, the Company had unrealized gains on available-for-sale
securities of $4,000,000, net of tax, which were recorded as part of
stockholders' equity.
LOANS RECEIVABLE. Loans receivable grew 20% during the nine month period to
$3,627,022,000 at June 30, 1996 from $3,034,027,000 at September 30, 1995. The
increase resulted from record loan originations of $1,248,191,000 in fiscal
1996, an increase of 63% from the nine months ended June 30, 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. 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 June 30, 1996 were $2,498,347,000
compared with $2,445,335,000 at September 30, 1995. The growth in customer
accounts approximated 2% or $53,012,000 for the nine-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 $389,247,000 to
$1,873,334,000 at June 30, 1996, a 26% increase over nine months ago. See
Interest Rate Risk above.
RESULTS OF OPERATIONS
Net interest income increased $8,613,000 (23%) to $46,053,000 for the June 1996
quarter from $37,440,000 a year ago, while net interest income increased
$10,929,000 (9%) to $128,542,000 for the nine months ended June 30, 1996 from
the $117,613,000 for the same period of 1995. The net interest spread
increased to 2.90% from 2.78% at March 31, 1996 and 2.60% at June 30, 1995.
Interest income on loans increased $17,565,000 (29%) to $78,339,000 for the
quarter ended June 30, 1996, from $60,774,000 for the same period one year ago.
For the nine months ended June 30, 1996 interest on loans increased $52,206,000
(30%) to $224,676,000 from $172,470,000 for the same period one year ago. The
increase resulted from record loan originations, increasing total loans to
$3,627,022,000 at June 30, 1996 from $2,769,133,000 at June 30, 1995. Average
interest rates on loans were 8.27% at June 30, 1996 compared with 8.55% one
year ago.
Interest income on mortgage-backed securities declined $3,493,000 (16%) to
$17,764,000 for the quarter ended June 30, 1996, versus $21,257,000 the same
period one year ago. Interest on mortgage-backed securities declined
$5,509,000 (9%) to $57,464,000 for the nine months ended June 30, 1996 compared
with $62,973,000 for the same period one year ago. The weighted average yield
of 7.61% at June 30, 1996 was nearly unchanged from the 7.68% at June 30, 1995.
The mortgage-backed securities portfolio declined 19% to $880,706,000 at June
30, 1996 as $136,116,000 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 on investments increased $1,266,000 (23%) and $1,922,000 (12%) for the
three and nine months ended June 30, 1996, respectively, compared to the same
periods one year ago. The expanded investment securities portfolio, which
increased 17% at June 30, 1996 from June 30, 1995, led to the increase in
interest on investments despite the decline in the weighted average yield on
investment securities to 7.62% as of June 30, 1996 from 7.91% at June 30, 1995.
Interest expense on customer accounts increased $488,000 (2%) to $31,320,000
for the quarter ended June 30, 1996, from $30,832,000 for the same period one
year ago. Interest expense on customer accounts increased $16,862,000 (21%) to
$98,979,000 for the nine months ended June 30, 1996 versus $82,117,000 for the
same period one year ago. The average cost of customer accounts decreased to
4.98% at quarter end compared to 5.19% one quarter ago, 5.51% nine months ago,
and 5.46% one year ago.
Interest on FHLB advances and other borrowings increased $6,237,000 (32%) to
$25,619,000 for the June 1996 quarter compared with $19,382,000 for the June
1995 quarter. The nine month figures increased $20,828,000 (40%) to
$72,395,000 compared with $51,567,000 for the same period one year ago. The
average rates paid at June 30, 1996 declined to 5.49% from the 5.50% one
quarter ago, 5.87% nine months ago, and 6.03% one year ago.
-9-
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)
During the quarter ended June 30, 1996, the Association provided an additional
$1,000,000 to general loan loss allowances for the inherent risks associated
with the growth in the loan portfolio. Provisions for loan losses were
$1,276,000 and $2,060,000 for the three and nine months ended June 30, 1996
versus $612,000 and $1,306,000 for the same periods one year ago, respectively.
Other income increased $170,000 (10%) to $1,828,000 for the quarter ended June
30, 1996, compared with $1,658,000 for the comparable period one year ago. The
increase was $991,000 (26%) to $4,817,000 for the nine months ended June 30,
1996 versus $3,826,000 for the same period one year ago. Gains on the sale of
available-for-sale securities totalled $735,000 and $1,444,000 for the quarter
and nine months ended June 30, 1996, respectively, compared with $342,000 for
both the three and nine months ended June 30, 1995.
Other expense increased $406,000 (4%) and $1,525,000 (5%), respectively, for
the quarter and nine months ended June 30, 1996, compared with the same periods
ended June 30, 1995. Both increases were offset by adjustments of $(33,000)
and $930,000, respectively, for deferred loan origination costs associated with
record loan volumes for the quarter and nine months ended June 30, 1996. The
changes reflect general inflationary increases plus the incremental costs
associated with expansion of the branch network from 85 offices at June 30,
1995 to 89 offices at June 30, 1996. Other expense from the June 30, 1996
quarter equaled .77% of average assets compared with .86% for the same period
one year ago. The number of staff, including part-time employees on a
full-time equivalent basis, was 597 at June 30, 1996 compared to 562 at June
30, 1995.
Income taxes increased $2,778,000 (26%) and $3,789,000 (11%) for the three and
nine months ended June 30, 1996, respectively, when compared to the same
periods one year ago due to higher taxable income. The effective tax rate was
36.6% for both the three and nine month period ended June 30, 1996 and the same
periods ended June 30, 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.
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.
-10-
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
Not applicable
Item 5. OTHER INFORMATION
Not applicable
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A report on form 8-K was filed on July 15, 1996 which described an Agreement
and Plan of Merger entered into by Washington Federal, Inc. and Metropolitan
Bancorp on July 11, 1996. No financial statements were filed with the report.
-11-
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 9, 1996 GUY C. PINKERTON
Chairman, President and
Chief Executive Officer
/s/ Ronald L. Saper
---------------------------------
August 9, 1996 RONALD L. SAPER
Executive Vice-President and
Chief Financial Officer
/s/ Keith D. Taylor
---------------------------------
August 9, 1996 KEITH D. TAYLOR
Senior Vice-President and
Treasurer
-12-