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, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
For Quarter Ended June 30, 1999 Commission
file number
0 25454
WASHINGTON FEDERAL, INC.
(Exact name of registrant as specified in its
charter)
Washington
91-1661606
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
425 Pike Street Seattle, Washington
98101
(Address of principal executive offices and Zip Code)
(206) 624-7930
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past
90 days.
(1) Yes X . No .
(2) Yes X . No .
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the
issuer's classes of common
stock, as of the latest practicable date.
Title of class:
JULY 31, 1999
Common stock, $1.00 par value
54,658,723
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, 1999 and September 30, 1998. . . . . .
. .
Page 3
Consolidated Statements of Operations for the three
and nine months ended June 30, 1999 and 1998. . . . .
. .
Page 4
Consolidated Statements of Cash Flows for the
nine months ended June 30, 1999 and 1998 . . . . . .
. . . . Page 5
Notes to Consolidated Financial Statements. . . . . .
. .
Page 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . .
. .
Page 8
PART II
Item 1. Legal Proceedings . . . . . . . . . . . . ..
. . . . Page 15
Item 2. Changes in Securities. . . . . . . . . . . ..
. . . .
Page 15
Item 3. Defaults upon Senior Securities. . . . . . . ..
. . . .
Page 15
Item 4. Submission of Matters to a Vote of Stockholders ..
. . . . . .
Page 15
Item 5. Other Information . . . . . . . . . . . . ..
. . . . Page 15
Item 6. Exhibits and Reports on Form 8-K . . . . . . ..
. . . .
Page 15
Signatures . . . . . . . . . . . . . . . . .
.Page 16
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
. . . . . . . . . . . . . . . . . June 30, 1999
September 30, 1998
(In thousands, except per share data)
ASSETS
Cash. . . . . . . . . . . . . . . . . . . . . . $
27,381 $ 22,215
Available-for-sale securities . . . . . . . . . 869,945
764,188
Held-to-maturity securities . . . . . . . . . . 342,993
445,871
Loans receivable. . . . . . . . . . . . . . . .4,235,661
4,143,525
Interest receivable . . . . . . . . . . . . . . 32,949
35,175
Premises and equipment, net . . . . . . . . . . 50,110
48,882
Real estate held for sale . . . . . . . . . . . 18,983
16,193
FHLB stock. . . . . . . . . . . . . . . . . . . 106,891
101,050
Costs in excess of net assets acquired. . . . . 49,097
53,639
Other assets. . . . . . . . . . . . . . . . . .
5,262 6,273
. . . . . . . . . . . . . . . . .$5,739,272
$5,637,011
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Customer accounts
Savings and demand accounts . . . . . . . .
$3,267,302 $3,071,175
Repurchase agreements with customers. . . .
93,143 85,027
. . . . . . . . . . . . . . . . . .3,360,445
3,156,202
FHLB advances . . . . . . . . . . . . . . . . . 955,000
1,356,500
Other borrowings, primarily securities sold under agreements to
repurchase
. . . . . . . . . . . . . . . . . . . . . . . .560,584
221,819
Advance payments by borrowers for taxes and insurance. .
14,458 25,332
Federal and state income taxes. . . . . . . . . 55,329
63,969
Accrued expenses and other liabilities. . . . .
44,711 46,017
. . . . . . . . . . . . . . . . . .4,990,527 ]
4,869,839
Stockholders' equity
Common stock, $1.00 par value, 100,000,000 shares authorized;
62,141,265 and 56,423,961 shares issued; 54,635,673 and
51,446,129 shares outstanding. . . . . . . . 62,141
56,424
Paid-in capital . . . . . . . . . . . . . . . . 784,320
714,700
Valuation adjustment for available-for-sale securities, net of
taxes 10,000
. . . . . . . . . . . . . . . . . . . . . . . .35,000
Treasury stock, at cost; 7,505,592 and 4,977,832 shares. (
135,528) ( 92,221)
Retained earnings . . . . . . . . . . . . . . .
27,812 53,269
. . . . . . . . . . . . . . . . . . 748,745
767,172
. . . . . . . . . . . . . . . . . .$5,739,272
$5,637,011
CONSOLIDATED FINANCIAL HIGHLIGHTS
Stockholders' equity per share. . . . . . . . .$ 13.70 $
13.56
Stockholders' equity to total assets. . . . . . 13.05%
13.61%
Loans serviced for others . . . . . . . . . . . $
51,430 $ 73,606
Weighted average rates at period end
Loans and mortgage-backed securities . . . . 7.65%
7.98%
Investment securities* . . . . . . . . . . . 8.04
7.76
Combined rate on loans, mortgage-backed securities and
investment securities
. . . . . . . . . . . . . . . . . . . . . . . . 7.67
7.96
Customer accounts. . . . . . . . . . . . . . 4.70
5.09
Borrowings . . . . . . . . . . . . . . . . . 5.30
5.50
Combined cost of customer accounts and borrowings . . . . .
. . 4.89 5.23
Interest rate spread . . . . . . . . . . . . 2.78
2.73
*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,
1999
. . . . . . . . 1998 1999 1998
(In
thousands, except per share data)
INTEREST INCOME
Loans. . . . . . . . . . . . $ 87,458 $ 90,767 $264,732
$274,567
Mortgage-backed securities . 20,348 17,657 60,230
51,735
Investment securities. . . . 4,471 6,500 14,969
19,785
112,277
. . . . . . . . . . 114,924 339,931 346,087
INTEREST EXPENSE
Customer accounts. . . . . . 39,544 38,694 120,032
116,092
FHLB advances and other borrowings . . 19,842 23,184
61,628 74,002
59,386
. . . . . . . . . . 61,878 181,660 190,094
Net interest income. . . . . 52,891 53,046 158,271
155,993
Provision for loan losses. . 301 224
684 555
Net interest income after provision for loan losses
52,590 52,822 157,587
. . . . . . . . . . 155,438
OTHER INCOME
Gain on sale of securities . 1,403 1,633 2,747
3,969
Other. . . . . . . . . . . . 1,626 1,406 7,194
3,937
3,029
. . . . . . . . . . . 3,039 9,941 7,906
OTHER EXPENSE
Compensation and fringe benefits . . . 6,659 6,427
20,138 18,481
Federal insurance premiums . 461 450 1,361
1,342
Occupancy expense. . . . . . 967 977 2,975
3,072
Other. . . . . . . . . . . . 3,421 3,712 10,565
11,008
11,508
. . . . . . . . . . .11,566 35,039 33,903
Gains on real estate owned, net. . . . 10
40 104 236
Income before income taxes . 44,121 44,335 132,593
129,677
Income taxes . . . . . . . . 15,373 15,883 47,000
46,179
NET INCOME . . . . . . . . . $ 28,748 $ 28,452 $ 85,593 $
83,498
PER SHARE DATA
Basic earnings per share . . $ .53 $ .49
$ 1.54 $ 1.45
Diluted earnings per share . $ .52 $ .49
$ 1.53 $ 1.44
Cash dividends . . . . . . . $ .23 $ .21
$ .67 $ .61
Weighted average number of shares outstanding,
including dilutive stock options . . 55,219,596
58,318,867 56,053,157 58,253,922
Return on average assets . . 2.01% 2.05% 2.01%
1.99%
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine
Months Ended June 30,
1999
1998
(In
thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income . . . . . . . . . . . . . . . . . . $
85,593 $ 83,498
Adjustments to reconcile net income to net cash provided by
operating activities
Amortization of fees, discounts and premiums, net. (
20,315) ( 20,690)
Amortization of costs in excess of net assets acquired
4,542
. . . . . . . . . . . . . . . . . . . . 4,524
Depreciation . . . . . . . . . . . . . . . .
1,710 1,755
Gains on investment securities and real estate held for sale
( 2,851)
. . . . . . . . . . . . . . . . . . .( 4,205)
Decrease in accrued interest receivable. . .
2,226 1,365
Increase in income taxes payable . . . . . .
2,475 9,161
FHLB stock dividends . . . . . . . . . . . . (
5,841) ( 5,592)
Decrease in other assets . . . . . . . . . .
3,896 100
Increase (decrease) in accrued expenses and other liabilities
(1,406)
. . . . . . . . . . . . . . . 3,941
Net cash provided by operating activities. . .
70,029 73,857
CASH FLOWS FROM INVESTING ACTIVITIES
Loans and contracts originated
Loans on existing property . . . . . . . . .
(768,425) (540,645)
Construction loans . . . . . . . . . . . . .
(303,742) (358,920)
Land loans . . . . . . . . . . . . . . . . . (
73,792) ( 77,199)
Loans refinanced . . . . . . . . . . . . . .
(148,717) (119,404)
(1,294,676)
(1,096,168)
Savings account loans originated . . . . . . . (
3,183) ( 3,880)
Loan principal repayments. . . . . . . . . . .
1,194,042 1,111,384
Increase in undisbursed loans in process . . . 15,410
40,651
Loans purchased. . . . . . . . . . . . . . . . (
452) ( 1,445)
Purchase of available-for-sale securities. . .
(423,749) (102,865)
Principal payments and maturities of available-for-sale
securities
. . . . . . . . . . . . . . . . . . . 262,033
110,625
Sales of available-for-sale securities . . . .
22,726 43,969
Principal payments and maturities of held-to-maturity securities
. . . . . . . . . . . . . . . . . . . 104,128
87,046
Proceeds from sale of real estate held for sale . .
10,082 8,191
Premises and equipment purchased, net . . . .
(2,938) (2,484)
Net cash provided (used) by investing activities . .
(116,577) 195,024
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in customer accounts. . . . . . .
204,243 105,123
Decrease in short-term borrowings. . . . . . . (
62,735) (723,258)
Proceeds from long-term borrowings . . . . . . ---
400,000
Repayments of long-term borrowings . . . . . .
--- (2,500)
Proceeds from exercise of common stock options
972 940
Proceeds from employee stock ownership plan. . 669
1,637
Treasury stock purchased . . . . . . . . . . .
(43,808) ---
Dividends. . . . . . . . . . . . . . . . . . . (
36,753) ( 35,013)
Decrease in advance payments by borrowers for taxes and insurance
. . . . . . . . . . . . . . . . . . .( 10,874) (
11,316)
Net cash provided (used) by financing activities . .
51,714 (264,387)
Increase in cash . . . . . . . . . . . . . . . 5,166
4,494
Cash at beginning of period. . . . . . . . . .
22,215 23,444
Cash at end of period. . . . . . . . . . . . . $
27,381 $ 27,938
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Noncash investing activities
Real estate acquired through foreclosure . . $
12,768 $ 7,708
Cash paid during the period for
Interest . . . . . . . . . . . . . . . . . .
184,364 188,139
Income taxes . . . . . . . . . . . . . . . .
44,022 41,000
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, 1998 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, 1999 compared
with 21 cents for the same period one year ago. On July 30,
1999 the Company paid
its 66th consecutive quarterly cash dividend.
NOTE C - Stock Dividend
On January 27, 1999, 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, 1999 which was distributed on February 26, 1999. All
previously reported per
share amounts have been adjusted accordingly.
NOTE D - 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 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, 1999 and June 30, 1998
totaled $13,748,000 and
$28,452,000, respectively. The total comprehensive income for
the nine months ended
June 30, 1999 and June 30, 1998 totaled $60,593,000 and
$86,498,000, respectively.
The difference between the Company's net income and total
comprehensive income equals
the change in the net unrealized gain on securities
available-for-sale during the
applicable periods.
NOTE E - 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 $85,593,000 55,592,156
$1.54
Diluted EPS
Income available to common stockholders
plus assumed conversions $85,593,000 56,053,157
$1.53
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).
THE YEAR 2000 ISSUE
This discussion constitutes a "Year 2000 Readiness Disclosure"
within the meaning of
the Year 2000 Information and Readiness Disclosure Act of 1998
and contains forward-
looking statements that have been prepared on the basis of the
Company's best judgment
and currently available information. These forward-looking
statements are inherently
subject to significant business, third-party and regulatory
uncertainties and
contingencies, many of which are beyond the control of the
Company. In addition,
these forward-looking statements are based on the Company's
current assessments and
renovation plans, which are based on certain representations of
third-party servicers
and are subject to change. Accordingly, there can be no
assurance that the Company's
results of operations will not be adversely affected by
difficulties or delays in the
Company's or third-party's Year 2000 readiness efforts. See
below for a discussion
of factors that may cause such forward-looking statements to
differ from actual
results.
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.
A few years ago, the Company began to assess the Year 2000 issue,
including upgrades
to its software and hardware. 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 products to our customer base. Based on
this assessment, the
Company implemented a plan to renovate and implement its
computer applications by
December 31, 1998. As of December 31, 1998, 100% of the
renovation and implementation
of mission critical systems had been completed. These mission
critical applications,
which were all written internally, have been renovated and
tested by the Company's
information systems department.
A full scale Year 2000 integration test, where computer clocks
were advanced to
simulate year-end 1999 processing, January 2000 processing and
leap year processing,
occurred in March 1999. The test, which was accomplished over a
weekend, involved
representatives of each principal business unit of the Company.
All facets of our
mission critical systems were exercised and the results of all
testing matched the
predetermined output.
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 accounts payable. Most
of these systems
were written by third-party servicers and the Company relies on
their written
representations that their software is Year 2000 compliant.
The Company's embedded systems include items as diverse as the
computer chips in the
heating, ventilation and air conditioning systems to office
building elevators. The
Company has identified those systems and relies on written
representation of the
third-party servicers.
Every two months, the Company reports to its Board of Directors
the progress made in
addressing the Year 2000 issue, including time lines and
percentage of completion.
Management met its target of December 31, 1998 to have its
systems renovated and
implemented and validation testing of all mission critical
systems was successfully
completed in March 1999. Management recently reported the
results of an Office of
Thrift Supervision examination of the Company's Year 2000
preparedness and compliance
issues to the Board of Directors, who found the report to be
satisfactory.
Through June 30, 1999, the Company has not incurred any material
incremental costs to
become Year 2000 compliant. The Company's mission critical
systems have been
renovated and tested by the already existing information systems
staff. Less than $1
million has been spent on the Year 2000 project to date. 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.
Based on its current assessments and renovation plans, which are
based in part on
certain representations of third-party servicers, the Company
does not expect that
it will experience a significant disruption of its operations as
a result of the
change to the new millennium. Although the Company has no reason
to conclude that a
failure will occur, the most reasonably likely worst-case Year
2000 scenario would
entail a disruption or failure of the Company's power supply or
voice and data
transmission suppliers, a computer system, a third-party
servicer, or a facility. If
such a failure were to occur, the Company would implement its
contingency plans. The
Company continues enhancing its existing contingency plans to
service customers in
case events beyond its control impact computer systems. While it
is impossible to
quantify the impact of such a scenario, the most reasonably
likely worst-case
scenario would entail a diminishment of service levels, some
customer inconvenience,
and additional costs from the contingency plan implementation,
which are not
currently estimable. While the Company has contingency plans to
address a temporary
disruption in these services, there can be no assurance that any
disruption or
failure will be only temporary, that the Company's contingency
plans will function
as anticipated, or that the results of operations of the Company
will not be
adversely affected in the event of a prolonged disruption or
failure.
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, 1999 the Company had a negative one year
maturity gap of
approximately 45% of total assets.
The interest rate spread increased to 2.78% at June 30, 1999 from
2.73%at September
30, 1998. This increase was, in large part due to the continued
repricing of maturing
customer deposits and borrowed money at lower interest rates.
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 26.4% of total
assets at June 30, 1999, compared to 28.0% of total assets at
September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net worth at June 30, 1999 was $748,745,000 or
13.1% of total assets.
This is a decrease of $18,427,000 from September 30, 1998 when
net worth was
$767,172,000 or 13.6% of total assets. The decrease in the
Company's net worth
included $36,753,000 of cash dividends paid, $25,000,000 of
reduction in the
valuation reserves for available-for-sale securities and stock
repurchases of
$43,808,000 during the nine months ended June 30, 1999. Net
worth was increased by
the $85,593,000 of net income for the nine month period ended
June 30, 1999. For the
nine month period ended June 30, 1999, 2,058,700 shares of
common stock were
repurchased at an average price of $21.28. This leaves a total
of 3.2 million shares
currently authorized by the Board of Directors as available for
repurchase.
The Company's percentage of net worth to total assets is among
the highest in the
nation and the Association's regulatory capital ratios are
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
$171,100,000, an $85,128,000
decrease from nine months ago. The decrease results primarily
from the maturity of
$85,500,000 of investment securities which were not replaced as
the Company continues
its emphasis on production of higher yielding loans.
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,
1999, total liquidity was 17.18%.
CHANGES IN FINANCIAL CONDITION
Available-for-sale and held-to-maturity securities. The Company
purchased $423,749,000
of mortgage-backed securities during the nine month period, all
of which were
categorized as available-for-sale. As of June 30, 1999, the
Company had unrealized
gains on available-for-sale securities of $10,000,000, net of
tax, which were
recorded as part of stockholders' equity.
Loans receivable. Loans receivable increased (2)% during the
nine month period to
$4,235,661,000 at June 30, 1999 from $4,143,525,000 at September
30, 1998 despite an
18% increase in loan origination volume to $1,294,676,000 for
the nine months ended
June 30, 1999 compared with the $1,096,168,000 for the same
period one year ago.
Total repayments and prepayments for the nine months ended June
30, 1999 were
$1,194,042,000.
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, 1999, the Company's recorded investment
in impaired loans was
$6.5 million which had allocated reserves of $2.8 million.
Loans of $9.2 million did
not require reserves. The average balance of impaired loans
during the quarter was
$12.6 million and interest income (cash received) from impaired
loans was $79,000.
For the nine months ended June 30, 1999 the average amount of
impaired loans was
$14.1 million and interest income (cash received) from impaired
loans was $265,000.
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, 1999. The Company will continue to evaluate these
assets and, if
appropriate, provide for any diminuition in value of these
assets.
CHANGES IN FINANCIAL CONDITION(continued)
Real estate held for sale. Real estate held for sale increased
$2,790,000 (17%) to
$18,983,000 at June 30, 1999 from $ 16,193,000 at September 30,
1998. This increase
relates primarily to one large builder with loans totalling $5.0
million. Despite the
increase in real estate held for sale, non-performing assets as
a percentage of total
assets dropped from .44% at September 30, 1998 to .38% at June
30, 1999.
Customer accounts. Customer accounts increased $204,243,000, or
6% to $3,360,445,000
at June 30, 1999 compared with $3,156,202,000 at September 30,
1998.
FHLB advances and other borrowings. Total borrowings decreased to
$1,515,584,000. See
Interest Rate Risk above.
RESULTS OF OPERATIONS
Net interest income decreased $155,000 (1%) to $52,891,000 for
the June 1999 quarter
from $53,046,000 a year ago, while net interest income increased
$2,278,000 (1%) to
$158,271,000 for the nine months ended June 30, 1999 from the
$155,993,000 for the
same period of 1998. The net interest spread was 2.78% at June
30, 1999, compared to
2.69% at December 31, 1998 and 2.80% at June 30, 1998.
Interest income on loans decreased $3,309,000 (4%) to $87,458,000
for the quarter
ended June 30, 1999 from $90,767,000 for the same period one
year ago. For the nine
months ended June 30, 1999 interest on loans decreased
$9,835,000 (4%) to
$264,732,000 from $274,567,000 for the same period one year ago.
The average balance
of loans decreased to $4,154,993,000(1%) for the nine months
ended June 30, 1999 from
$4,175,984,000 for the nine months ended June 30, 1998. Average
interest rates on
loans decreased to 7.80% at June 30, 1999 from 8.15% one year
ago.
Interest income on mortgage-backed securities increased
$2,691,000 (15%) to
$20,348,000 for the quarter ended June 30, 1999 versus the
$17,657,000 for the
quarter one year ago. Interest on mortgage-backed securities
increased $8,495,000
(16%) to $60,230,000 for the nine months ended June 30, 1999
compared with the
$51,735,000 for the same period one year ago. The average
balance of mortgage-backed
securities increased to $1,098,724,000 (22%) for the nine months
ended June 30, 1999
from $902,472,000 for the nine months ended June 30, 1998 as the
Company purchased
$423,749,000 in mortgage-backed securities to supplement current
loan production. The
weighted average yield of 7.05% at June 30, 1999 was down from
the 7.68% at June 30,
1998.
Interest on investments decreased $2,029,000 (31%) to $4,471,000
for the quarter ended
June 30, 1999 versus the $6,500,000 for the same quarter one
year ago. Interest on
investments decreased $4,816,000 (24%) to $14,969,000 for the
nine months ended June
30, 1999 compared with the $19,785,000 for the same period one
year ago. The average
balance of investments decreased to $288,591,000 (25%) for the
nine month period
ended June 30, 1999 from $385,767,000 for the nine month period
ended June 30, 1998.
The weighted average yield was 8.04% at June 30, 1999 compared
to 7.73% at June 30,
1998.
RESULTS OF OPERATIONS(continued)
Interest expense on customer accounts increased $850,000 (2%) to
$39,544,000 for the
June 1999 quarter from $38,694,000 for the June 1998 quarter.
Interest expense on
customer accounts increased $3,940,000 (3%) to $120,032,000 for
the nine months ended
June 30, 1999 versus $116,092,000 for the same period one year
ago. The increase in
interest expense relates to the increase in average customer
accounts from
$3,012,663,000 to $3,276,599,000 (9%) for the nine months ended
June 30, 1999 and
1998, respectively. The increase is offset by the decrease in
the average cost of
customer accounts from 5.11% at June 30, 1998 to 4.70% on June
30, 1999.
Interest on FHLB advances and other borrowings decreased
$3,342,000 (14%) to
$19,842,000 for the June 1999 quarter compared with the
$23,184,000 for the June 1998
quarter. The nine-month figures decreased $12,374,000 (17%) to
$61,628,000 compared
with the $74,002,000 for the same period one year ago. The
decrease was due to a
reduction in the average total borrowings from $1,762,306,000 to
$1,540,820,000 (13%)
for the nine months ended June 30, 1999 and June 30, 1998,
respectively. The average
rates paid on borrowings at June 30, 1999 of 5.30% compared with
5.53% at June 30,
1998.
Other income decreased $10,000 to $3,029,000 for the June 1999
quarter compared with
the $3,039,000 for the June 1998 quarter. Other income
increased $2,035,000 (26%)
to $9,941,000 for the nine months ended June 30, 1999 versus
$7,906,000 for the same
period one year ago. Gains on the sale of available-for-sale
securities totalled
$1,403,000 and $2,747,000 for the quarter and nine months ended
June 30, 1999,
respectively. 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. The increase in
other income for the nine months ended June 30, 1999 included
several non-recurring
real estate transactions, the largest of which provided the
Company $1 million of
pre-tax income during the December 1998 quarter.
Other expense decreased $78,000 (1%) for the quarter ended June
30, 1999 compared to
the June 30, 1998 quarter. Other expense increased $1,289,000
(4%) for the nine
months ended June 30, 1999 compared to the same period one year
ago. Other expense
for the quarter and nine months ended June 30, 1999 equalled
.80% and .82%,
respectively, of average assets compared to .83% and .81%,
respectively, for the same
periods one year ago. The number of staff, including part-time
employees on a full-
time equivalent basis, were 696 at June 30, 1999 and 662 at June
30, 1998.
Income taxes decreased $510,000 (3%) and increased $821,000 (2%)
for the quarter and
nine months ended June 30, 1999, respectively, when compared to
the same period one
year ago. The effective tax rate was 35.5% for the nine month
period ended June 30,
1999 and 35.6% for the same period ended June 30, 1998.
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, 1999 GUY C. PINKERTON
Chairman and
Chief Executive Officer
/s/ Ronald L. Saper
August 13, 1999 RONALD L. SAPER
Executive Vice-President and
Chief Financial Officer
/s/ Joseph R. Runte
August 13, 1999 JOSEPH R. RUNTE
Vice-President and
Controller