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, 1998
[ ] 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, 1998 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,
1998
Common stock, $1.00 par value 52,458,240
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, 1998 and September 30, 1997. . . . . . . . . .
Page 3
Consolidated Statements of Operations for the three
and nine months ended June 30, 1998 and 1997. . . . . . . . .
Page 4
Consolidated Statements of Cash Flows for the
nine months ended June 30, 1998 and 1997 . . . . . . . . . .
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 13
Item 2. Changes in Securities. . . . . . . . . . . .. . . . . .
. Page 13
Item 3. Defaults upon Senior Securities. . . . . . . .. . . . . .
. Page 13
Item 4. Submission of Matters to a Vote of Stockholders .. . . . . .
. . . Page 13
Item 5. Other Information . . . . . . . . . . . . .. . . . .
Page 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . .. . . . . .
. Page 13
Signatures . . . . . . . . . . . . . . . . . .Page 14
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
June 30, 1998 September 30, 1997
(In thousands, except per share data)
ASSETS
Cash. . . . . . . . . . . . . . . . . . . . . . $ 27,938
$ 23,444
Available-for-sale securities . . . . . . . . . 634,670 672,132
Held-to-maturity securities . . . . . . . . . . 478,507 564,747
Loans receivable. . . . . . . . . . . . . . . .4,148,377 4,190,776
Interest receivable . . . . . . . . . . . . . . 35,018 36,383
Premises and equipment, net . . . . . . . . . . 48,281 47,552
Real estate held for sale . . . . . . . . . . . 29,942 30,189
FHLB stock. . . . . . . . . . . . . . . . . . . 99,176 93,584
Costs in excess of net assets acquired. . . . . 55,153 58,774
Other assets. . . . . . . . . . . . . . . . . . 1,908
2,008
$5,558,970 $5,719,589
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Customer accounts
Savings and demand accounts . . . . . . . . $3,003,660
$2,905,371
Repurchase agreements with customers. . . . 79,494
72,660
3,083,154 2,978,031
FHLB advances . . . . . . . . . . . . . . . . .1,063,000 1,601,000
Other borrowings, primarily securities sold under agreements to repurchase . .
. . . . . . . . . . . . . . . . . . . . . . 515,786 303,544
Advance payments by borrowers for taxes and insurance. . 15,024
26,340
Federal and state income taxes. . . . . . . . . 64,420 52,259
Accrued expenses and other liabilities. . . . . 44,914
40,670
4,786,298 5,001,844
Stockholders' equity
Common stock, $1.00 par value, 100,000,000 shares authorized;
56,377,092 and 51,137,889 shares issued; 52,447,284 and
47,508,759 shares outstanding. . . . . . . . 56,377 51,138
Paid-in capital . . . . . . . . . . . . . . . . 713,731 573,241
Valuation adjustment for available-for-sale securities, net of taxes. .
33,000 30,000
Treasury stock, at cost; 3,929,808 and 3,629,130 shares. ( 67,202)
( 68,266)
Retained earnings . . . . . . . . . . . . . . . 36,766
131,632
772,672 717,745
$5,558,970 $5,719,589
CONSOLIDATED FINANCIAL HIGHLIGHTS
Stockholders' equity per share. . . . . . . . .$ 14.73 $ 13.74
Stockholders' equity to total assets. . . . . . 13.90% 12.55%
Loans serviced for others . . . . . . . . . . . $ 83,003 $
119,897
Weighted average rates at period end
Loans and mortgage-backed securities . . . . 8.07% 8.17%
Investment securities* . . . . . . . . . . . 7.73 7.72
Combined rate on loans, mortgage-backed securities and investment
securities . . 8.05 8.14
Customer accounts. . . . . . . . . . . . . . 5.11 5.18
Borrowings . . . . . . . . . . . . . . . . . 5.53 5.51
Combined cost of customer accounts and borrowings . . . . . . .
5.25 5.31
Interest rate spread . . . . . . . . . . . . 2.80 2.83
*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,
1998 1997
1998 1997
(In thousands, except per share data)
INTEREST INCOME
Loans. . . . . . . . . . . . $ 90,767 $ 91,002 $274,567 $265,646
Mortgage-backed securities . 17,657 18,468 51,735 56,593
Investment securities. . . . 6,500 6,811 19,785 19,715
114,924 116,281
346,087 341,954
INTEREST EXPENSE
Customer accounts. . . . . . 38,694 36,465 116,092 104,366
FHLB advances and other borrowings . . 23,184 28,935 74,002
87,008
61,878 65,400
190,094 191,374
Net interest income. . . . . 53,046 50,881 155,993 150,580
Provision for loan losses. . 224 201 555
614
Net interest income after provision for loan losses 52,822
50,680 155,438 149,966
OTHER INCOME
Gain on sale of securities . 1,633 340 3,969 340
Other. . . . . . . . . . . . 1,406 1,086 3,937 2,864
3,039 1,426
7,906 3,204
OTHER EXPENSE
Compensation and fringe benefits . . . 6,427 6,164 18,481
18,055
Federal insurance premiums . 450 523 1,342 1,866
Occupancy expense. . . . . . 977 1,036 3,072 3,082
Other. . . . . . . . . . . . 3,712 3,458 11,008 10,260
11,566 11,181
33,903 33,263
Gains on real estate owned, net. . . . 40 515
236 755
Income before income taxes . 44,335 41,440 129,677 120,662
Income taxes . . . . . . . . 15,883 14,425 46,179 43,140
NET INCOME . . . . . . . . . $ 28,452 $ 27,015 $ 83,498 $ 77,522
PER SHARE DATA
Basic earnings per share . . $ .54 $ .52 $
1.59 $ 1.50
Diluted earnings per share . $ .54 $ .51 $
1.58 $ 1.49
Cash dividends . . . . . . . $ .23 $ .21 $
.67 $ .61
Weighted average number of shares outstanding,
including dilutive stock options . . 53,017,152
52,717,585 52,958,111 52,052,763
Return on average assets . . 2.05% 1.89% 1.99% 1.83%
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
June 30,
1998
1997
(In
thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income . . . . . . . . . . . . . . . . . . $ 83,498
$ 77,522
Adjustments to reconcile net income to net cash provided by operating
activities
Amortization of fees, discounts and premiums, net. ( 20,690)
( 13,451)
Amortization of costs in excess of net assets acquired . . . . . .
4,524 4,091
Depreciation . . . . . . . . . . . . . . . . 1,755
1,560
Gains on investment securities and real estate held for sale . . .
( 4,205) ( 1,036)
Decrease in accrued interest receivable. . . 1,365
1,834
Increase in income taxes payable . . . . . . 9,161
7,850
FHLB stock dividends . . . . . . . . . . . . ( 5,592)
( 4,834)
Decrease in other assets . . . . . . . . . . 100
9,166
Increase (decrease) in accrued expenses and other liabilities. . .
3,941 ( 467)
Net cash provided by operating activities. . . 73,857
82,235
CASH FLOWS FROM INVESTING ACTIVITIES
Loans and contracts originated
Loans on existing property . . . . . . . . . (540,645)
(402,663)
Construction loans . . . . . . . . . . . . . (358,920)
(300,970)
Land loans . . . . . . . . . . . . . . . . . ( 77,199)
( 54,067)
Loans refinanced . . . . . . . . . . . . . . (119,404)
( 30,144)
(1,096,168) (787,844)
Savings account loans originated . . . . . . . ( 3,880)
( 5,752)
Loan principal repayments. . . . . . . . . . . 1,111,384
722,471
Increase (decrease) in undisbursed loans in process. 40,651
(18,761)
Loans purchased. . . . . . . . . . . . . . . . ( 1,445)
( 764)
Purchase of available-for-sale securities. . . (102,865)
(44,187)
Principal payments and maturities of available-for-sale securities .
110,625 70,900
Sales of available-for-sale securities . . . . 43,969
109,252
Principal payments and maturities of held-to-maturity securities . . . . .
. . . . . . . . . . 87,046 47,765
Proceeds from sale of real estate held for sale . . 8,191
9,770
Premises and equipment purchased, net . . . . ( 2,484)
( 6,254)
FHLB stock purchased . . . . . . . . . . . . . --- (9,057)
Cash received from acquisitions . . . . . . . ---
3,590
Net cash provided by investing activities. . . 195,024
91,129
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in customer accounts. . . . . . . 105,123
66,164
Decrease in short-term borrowings. . . . . . . (723,258)
(184,862)
Proceeds from long-term borrowings . . . . . . 400,000
---
Repayments of long-term borrowings . . . . . . (2,500)
---
Proceeds from exercise of common stock options 940
535
Proceeds from employee stock ownership plan. . 1,637 ---
Treasury stock purchased . . . . . . . . . . . --- ( 502)
Dividends. . . . . . . . . . . . . . . . . . . ( 35,013)
( 31,811)
Decrease in advance payments by borrowers for taxes and insurance. .
( 11,316)( 9,113)
Net cash used by financing activities. . . . . (264,387)
(159,589)
Increase in cash . . . . . . . . . . . . . . . 4,494 13,775
Cash at beginning of period. . . . . . . . . . 23,444
19,635
Cash at end of period. . . . . . . . . . . . . $ 27,938
$ 33,410
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Noncash investing activities
Real estate acquired through foreclosure . . $ 7,708
$ 4,119
Cash paid during the period for
Interest . . . . . . . . . . . . . . . . . . 188,139
192,052
Income taxes . . . . . . . . . . . . . . . . 41,000
36,930
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, 1997 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, 1998
compared with 21 cents
for the same period one year ago. On July 24, 1998 the Company paid its 62nd
consecutive quarterly
cash dividend.
NOTE C - Stock Dividend
On January 28, 1998, 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 12,
1998 which was
distributed on February 26, 1998. All previously reported per share amounts
have been adjusted
accordingly.
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
Income available to common
stockholders $83,498,000 52,447,284 $1.59
Diluted EPS
Income available to common stockholders
plus assumed conversions $83,498,000 52,958,111 $1.58
GENERAL
Washington Federal, Inc. (the "Company") is a unitary savings and loan holding
company. The
Company's wholly-owned subsidiary, Washington Federal Savings (the
"Association") is the
Company's primary operating entity.
THE YEAR 2000 ISSUE
Most existing computer programs use only two digits to identify the year in a
date field making the
assumption that the year's first two digits will always be 19. These programs
were developed without
considering the impact of the upcoming change in the century. If not
corrected, many computer
applications could fail or create erroneous results on or after January 1,
2000. For example, if an
interest calculation were made for the month of January 2000, but the system
assumed the year was
1900 the results could be materially erroneous.
Beginning a few years ago the Company began to assess the Year 2000 issue,
including upgrades to
its software and hardware. Based on this assessment the Company implemented a
plan to renovate and
test its computer applications by December 31, 1998. As of June 30, 1998,
management estimates 65%
of the renovation has occurred.
The Company's assessment segregated computer applications into three
categories: mission critical
systems, secondary systems and embedded systems. The mission critical systems
were identified as
those systems necessary to deliver our product to our customer base and
include the mainframe
hardware system and the software systems written for loans, deposits and the
general ledger. The
success of our Year 2000 renovation relies on the written assurances of our
equipments supplies, as
well as our testing of that system. The software programs, which were all
written internally, are being
renovated and tested by the Company's data processing department.
The Company's secondary systems are primarily personal computer based software
programs which
provide financial data for internal use. Examples of these secondary systems
include payroll, fixed
assets and stock options. Most of these systems were written by external
vendors and the Company
relies on their written assurances that their software is Year 2000 compliant
as well as our own testing
of the systems.
The Company's embedded systems include items as diverse as the computer chips
in the heating,
ventilation and air conditioning system to office building elevators. The
Company has identified those
systems and has contacted vendors to have systems tested and, if necessary,
corrected. The Company
maintains written documentation of contracts with vendors.
Every two months the Company reports to its Board of Directors the progress
made in addressing the
Year 2000 issue including time lines and percentages of completion. Management
is striving to meet
its target of December 31, 1998 to have its systems renovated and tested for
Year 2000 compliance.
Management recently reported the results of an Office of Thrift Supervision
examination of the
Company's Year 2000 compliance issues to the Board of Directors, which found
the report to be
satisfactory.
Through June 30, 1998 the Company has not incurred any material incremental
costs to become Year
2000 compliant. The Company's mission critical systems are being renovated and
tested by the already
existing data processing staff. However, it should be noted that approximately
40% of data processing
man hours are devoted to the Year 2000 project. The Company estimates the
total amount of time and
money expended to become Year 2000 compliant will have no material impact on
the Company's
results of operations or financial condition.
The Company realizes that Year 2000 failures are still possible. No estimate
can be made of a range
of amounts of loss should Year 2000 errors occur.
During the latter part of 1998 and early 1999 the Company will be developing
and testing contingency
plans to ensure that mission critical functions can continue if one or more
systems fail as a result of
a Year 2000 failure. The plan will take into account the impact of failure of
hardware, internal systems,
external systems and external service providers including power and
telecommunications. These plans
will be based on existing data backup procedures, manual operating procedures
and alternative sources
of power that have been developed by the Company over the last 10 years.
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, 1998 the
Company had a negative
one year maturity gap of approximately 43% of total assets.
The interest rate spread declined to 2.80% at June 30, 1998 from 2.83%at
September 30, 1997. Interest
rate spreads for the three previous quarters were relatively flat. During this
phase of the interest rate
cycle the Company chose to control its asset growth, strengthen its capital
position and deleverage the
balance sheet by reducing its borrowed money. FHLB advances and other borrowed
money decreased
to an equivalent of 28.4% of total assets at June 30, 1998, compared to 33.3%
of total assets at
September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net worth at June 30, 1998 was $772,672,000 or 13.9% of total
assets. This is an
increase of $54,927,000 from September 30, 1997 when net worth was
$717,745,000 or 12.6% of total
assets.
Under stock repurchase programs previously authorized by the Board of
Directors, the Company has
approximately 970,000 available to repurchase. The Company did not repurchase
any shares during the
nine months ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES(continued)
During the nine months ended June 30, 1998, the Washington Federal Savings
Profit Sharing
Retirement Plan and Employee Stock Ownership Plan ("ESOP") was authorized by
various employees
to purchase Company common stock for their account from their vested funds.
The Company issued
from treasury stock 62,233 shares of Company common stock to the ESOP at an
average purchase
price of $26.31 per share.
On April 28, 1998, the Company filed with the Securities and Exchange
Commission a Registration
Statement on Form S-8( Commission File No. 333-51143) to register 300,000
additional shares to be
issued under the ESOP.
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 $291,492,000, a
$21,702,000 decrease
from nine months ago.
The minimum liquidity levels of the Association are governed by the
regulations of the OTS. Liquidity
is defined as the ratio of average eligible unpledged liquid assets to the
sum of average withdrawable
savings plus short-term borrowings. Currently, the Association is required to
maintain total liquidity
at four percent. At June 30, 1998, total liquidity was 13.44% compared to
5.06% at September 30,
1997.
CHANGES IN FINANCIAL CONDITION
Available-for-sale and held-to-maturity securities. The Company purchased
$62,866,000 of
mortgage-backed securities during the nine month period, all of which were
categorized as available-
for-sale. Despite the purchase of mortgage-backed securities, the portfolio
declined $123,702,000
(10%) due to repayments of $197,671,000 during the nine month period.
As of June 30, 1998, the Company had unrealized gains on available-for-sale
securities of $33,000,000,
net of tax, which were recorded as part of stockholders' equity.
Loans receivable. Loans receivable fell (1)% during the nine month period to
$4,148,377,000 at June
30, 1998 from $4,190,776,000 at September 30, 1997. The net loans receivable
balance declined
despite a 39% increase in loan origination volume to $1,096,168,000 for the
nine months ended June
30, 1998 compared with the $787,844,000 for the same period one year ago.
Total repayments and
prepayments for the nine months ended June 30, 1998 were $1,111,384,000.
CHANGES IN FINANCIAL CONDITION(continued)
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, 1998, the Company's
recorded investment in
impaired loans was $9.3 million which had allocated reserves of $2.0 million.
Loans of $3.8 million
did not require reserves. The average balance of impaired loans during the
quarter was $9.4 million
and interest income (cash received) from impaired loans was $107,000. For the
nine months ended June
30, 1998 the average amount of impaired loans was $9.7 million and interest
income (cash received)
from impaired loans was $302,000.
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,
1998. The Company will
continue to evaluate these assets and, if appropriate, provide for any
diminuition in value of these
assets.
Customer accounts. Customer accounts at June 30, 1998 were $3,083,154,000
compared with
$2,978,031,000 at September 30, 1997.
FHLB advances and other borrowings. Total borrowings decreased to
$1,578,786,000. See Interest
Rate Risk above.
RESULTS OF OPERATIONS
Net interest income increased $2,165,000 (4%) to $53,046,000 for the June 1998
quarter from
$50,881,000 a year ago, while net interest income increased $5,413,000 (4%) to
$155,993,000 for the
nine months ended June 30, 1998 from the $150,580,000 for the same period of
1997. The net interest
spread was 2.80% at June 30, 1998, unchanged from December 31, 1997 and 2.82%
at June 30, 1997.
Interest income on loans decreased $235,000 (<1%) to $90,767,000 for the
quarter ended June 30,
1998 from $91,002,000 for the same period one year ago. For the nine months
ended June 30, 1998
interest on loans increased $8,921,000 (3%) to $274,567,000 from $265,646,000
for the same period
one year ago. Average interest rates on loans decreased to 8.15% at June 30,
1998 from 8.32% one
year ago.
Interest income on mortgage-backed securities decreased $811,000 (4%) to
$17,657,000 for the quarter
ended June 30, 1998 versus the $18,468,000 for the quarter one year ago.
Interest on mortgage-backed
securities declined $4,858,000 (9%) to $51,735,000 for the nine months ended
June 30, 1998
compared with the $56,593,000 for the same period one year ago. The weighted
average yield of
7.68% at June 30, 1998 was up from the 7.57% at June 30, 1997.
Interest on investments decreased $311,000 (5%) to $6,500,000 for the quarter
ended June 30, 1998
versus the $6,811,000 for the quarter one year ago. Interest on investments
increased $70,000 (<1%)
to $19,785,000 for the nine months ended June 30, 1998 compared with the
$19,715,000 for the same
RESULTS OF OPERATION(continued)
period one year ago. The weighted average yield was 7.73% at June 30, 1998
compared to 7.53% at
June 30, 1997.
Interest expense on customer accounts increased $2,229,000 (6%) to $38,694,000
for the June 1998
quarter from $36,465,000 for the June 1997 quarter. Interest expense on
customer accounts increased
$11,726,000 (11%) to $116,092,000 for the nine months ended June 30, 1998
versus $104,366,000
for the same period one year ago. The average cost of customer accounts
decreased to 5.11% at
quarter end compared to the 5.16% one year ago.
Interest on FHLB advances and other borrowings decreased $5,751,000 (20%) to
$23,184,000 for the
June 1998 quarter compared with the $28,935,000 for the June 1997 quarter.
The nine-month figures
decreased $13,006,000 (15%) to $74,002,000 compared with the $87,008,000 for
the same period one
year ago. The average rates paid at June 30, 1998 of 5.53% remained unchanged
from June 30, 1997.
Other income increased $1,613,000 (113%) to $3,039,000 for the June 1998
quarter compared with
the $1,426,000 for the June 1997 quarter. Other income increased $4,702,000
(147%) to $7,906,000
for the nine months ended June 30, 1998 versus $3,204,000 for the same period
one year ago. Gains
on the sale of available-for-sale securities totalled $1,633,000 and
$3,969,000 for the quarter and nine
months ended June 30, 1998, respectively. Gains on the sale of
available-for-sale securities totalled
$340,000 for both the quarter and nine months ending June 30, 1997.
Other expense increased $611,000 (5%) and $1,246,000 (4%), respectively, for
the quarter and nine
months ended June 30, 1998 compared to the same periods ended June 30, 1997.
Both increases were
offset by adjustments of $226,000 and $606,000, respectively, for deferred
loan origination costs
associated with loan volumes for the quarter and nine months ended June 30,
1998. Other expense for
the quarter and nine months ended June 30, 1998 equalled .83% and .81%,
respectively, of average
assets compared to .78% and .79%, respectively, for the same periods one year
ago. The number of
staff, including part-time employees on a full-time equivalent basis, were 662
at June 30, 1998 and 659
at June 30, 1997.
Income taxes increased $1,458,000 (10%) and $3,039,000 (7%) for the quarter
and nine months ended
June 30, 1998, respectively, when compared to the same period one year ago due
to higher taxable
income. The effective tax rate was 35.6% for the nine-month period ended June
30, 1998 and 35.8%
for the same period ended June 30, 1997.
RESULTS OF OPERATIONS(continued)
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.
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 13, 1998 GUY C. PINKERTON
Chairman, President and
Chief Executive Officer
/s/ Ronald L. Saper
August 13, 1998 RONALD L. SAPER
Executive Vice-President and
Chief Financial Officer
/s/ Keith D. Taylor
August 13, 1998 KEITH D. TAYLOR
Senior Vice-President and
Treasurer