SEATTLE--(BUSINESS WIRE)--Washington Federal, Inc. (Nasdaq: WAFD) (the "Company"), parent company

of Washington Federal, National Association, today announced quarterly

earnings of $51,098,000 or $0.63 per diluted share for the quarter ended

March 31, 2019, compared to $49,271,000 or $0.57 per diluted share for

the quarter ended March 31, 2018, a $0.06 or 11% increase in fully

diluted earnings per share. Return on equity for the quarter ended

March 31, 2019 was 10.20% compared to 9.81% for the quarter ended

March 31, 2018. Return on assets for the quarter ended March 31, 2019

was 1.24% compared to 1.26% for the same quarter in the prior year.

President and Chief Executive Officer Brent J. Beardall commented, “We

are pleased to report another solid quarter of growth in core earnings,

loans and deposits. Credit quality continues to improve with the

economic expansion. We acknowledge that this is a challenging interest

rate environment. Over the past three and a half years, the Federal

Reserve Bank has increased short-term interest rates from 0.25% to 2.50%

while long-term rates remained relatively flat at around 2.50%. Despite

this flattening of the yield curve, Washington Federal’s net interest

margin declined only 3 basis points from 3.18% to 3.15% and net interest

income grew by 12%1. Those results were possible due

to the progress we have made in growing our commercial banking

capabilities, demonstrated by the significant growth of our transaction

deposits and commercial loans.

"During the quarter we launched a program designed specifically to help

government workers (both current clients and non-clients) impacted by

the government shutdown. In the span of three weeks, the program

generated over 14,000 visits to Washington Federal's website, 1,700 new

loan approvals totaling $24 million of available credit and 1,700 new

checking account openings. Outstanding loan balances are down to $4

million since, when the government re-opened, most of those clients

chose to repay us immediately. We expect the remaining loan balances

will be repaid over time. Most importantly, by doing the right thing we

were able to help neighbors in their time of need and gain customers for

life. As one client told us in a letter, it is nice to be with a bank

that has 'heart.' We believe that making a reasonable profit and doing

what is right to help our communities often go hand-in-hand."

Total assets were $16.4 billion as of March 31, 2019, compared to $15.9

billion as of September 30, 2018, the Company's fiscal year-end. Asset

growth since September 30, 2018 is primarily attributable to a $418

million increase in net loans receivable.

Customer deposits increased by $335 million or 2.9% since September 30,

2018, reaching a total of $11.7 billion as of March 31, 2019.

Transaction accounts increased by $201 million or 3.0% during that

period, while time deposits increased $135 million or 2.8%. The Company

continues to focus on growing transaction accounts to lessen sensitivity

to rising interest rates and manage interest expense. As of March 31,

2019, 58% of the Company’s deposits were in transaction accounts. Core

deposits, defined as all transaction accounts and time deposits less

than $250,000, totaled 93.1% of deposits at March 31, 2019.

In 2013 - 2014, the Company acquired 74 branches and $1.9 billion of

deposits from Bank of America in rural areas of Arizona, New Mexico,

Nevada, Idaho and Washington. Since the close of those transactions, the

number of accounts in those branches has fallen by approximately 48%,

but the amount of deposit dollars has increased by 25%.

Borrowings from the Federal Home Loan Bank ("FHLB") totaled $2.6 billion

as of March 31, 2019, versus $2.3 billion at September 30, 2018. The

weighted average rate of FHLB borrowings was 2.77% as of March 31, 2019,

versus 2.66% at September 30, 2018, the increase being due to higher

rates on short-term FHLB advances.

Loan originations totaled $1.0 billion for the second fiscal quarter

2019, an increase of 22.0% from the $819 million of originations in the

same quarter one year ago. Partially offsetting loan originations in

each of these quarters were loan repayments of $773 million and $744

million, respectively. Commercial loans represented 77% of all loan

originations during the second fiscal quarter 2019 and consumer loans

accounted for the remaining 23%. The Company views organic loan growth,

funded by low cost core deposits, as the highest and best use of its

capital. Commercial loans are preferable in this interest rate

environment because they generally have floating interest rates and

shorter durations. The weighted average interest rate on the loan

portfolio was 4.61% as of March 31, 2019, an increase from 4.48% as of

September 30, 2018, due primarily to variable rate loans increasing in

yield with rising short-term rates.

Asset quality remained strong and the ratio of non-performing assets to

total assets improved to 0.36% as of March 31, 2019, compared to 0.45%

at March 31, 2018 and 0.44% at September 30, 2018. Since September 30,

2018, real estate owned decreased by $4 million, or 33%, and non-accrual

loans decreased by $7 million, or 12%. Delinquent loans were 0.40% of

total loans at March 31, 2019, compared to 0.40% at March 31, 2018 and

0.42% at September 30, 2018. The allowance for loan losses and reserve

for unfunded commitments totaled $139 million as of March 31, 2019, and

was 1.05% of gross loans outstanding, as compared to $137 million, or

1.06%, of gross loans outstanding at September 30, 2018. Net recoveries

were $1.2 million for the second fiscal quarter of 2019, compared to

$1.4 million for the prior year's quarter. The Company has recorded net

recoveries for 15 consecutive quarters, and in 22 of the last 23

quarters.

On February 22, 2019, the Company paid a regular cash dividend of $0.20

per share, which represented the 144th consecutive quarterly

cash dividend. During the quarter, the Company repurchased 698,705

shares of common stock at a weighted average price of $29.65 per share

and has authorization to repurchase 9,593,701 additional shares. The

Company varies the pace of share repurchases depending on several

factors, including share price, lending opportunities and capital

levels. Since September 30, 2018, tangible common stockholders’ equity

per share increased by $0.68, or 3.3%, to $21.06, and the ratio of

tangible common equity to tangible assets remained strong at 10.51% as

of March 31, 2019.

Net interest income was $120 million for the quarter, an increase of

$2.8 million or 2.4% from the same quarter in the prior year. The

increase in net interest income from the prior year was primarily due to

higher balances as average earning assets increased by $822 million, or

5.7%. Net interest margin decreased to 3.15% in the second fiscal

quarter of 2019, from 3.25% for the same quarter in the prior year as

the average rate earned on interest-earning assets rose by 26 basis

points while the average rate paid on interest-bearing liabilities

increased 40 basis points. The compression in the net interest margin is

the result of the flat to inverted yield curve.

The Company recorded a provision for loan losses of $750,000 in the

second fiscal quarter of 2019, compared with a release of loan loss

allowance of $950,000 in the same quarter of fiscal 2018. The increased

provision was due to loan growth and a smaller net recovery of prior

charge-offs.

Total other income was $12.8 million for the second fiscal quarter of

2019, an increase from $12.6 million in the same quarter of the prior

year.

Total operating expenses were $68.0 million in the second fiscal quarter

of 2019, an increase of $2.2 million, or 3.3%, from the prior year's

quarter. Increased operating expenses are the result of ongoing

investments in people, process and technology with the objective of

growing market share and ultimately earnings. Compensation and benefits

costs increased by $1.1 million over the prior year quarter primarily

due to headcount increases, the aforementioned salary increases and cost

of living adjustments since last year. Other expenses increased by $1.2

million, primarily due to Bank Secrecy Act (BSA) program enhancements.

In the second fiscal quarter of 2019, the Company had approximately $1.2

million of non-recurring BSA related costs and estimates that it will

incur an additional $1 million of non-recurring costs for BSA

improvements in the third fiscal quarter. The Company’s efficiency ratio

in the second fiscal quarter of 2019 was 51.2%, compared to 50.7% for

the same period one year ago. The increase in the efficiency ratio is

primarily due to the elevated expenses noted above.

Income tax expense totaled $13.9 million for the three months ended

March 31, 2019, as compared to $15.5 million for the same period one

year ago. The effective tax rate for the six months ended March 31, 2019

was 21.35% compared to 19.51% for the six months ended March 31, 2018

and 20.76% for the full fiscal year ended September 30, 2018. The

effective tax rate for the six months ended March 31, 2018 and the full

fiscal year ended September 30, 2018 was lower mainly due to discrete

tax benefits related to the revaluation of deferred tax assets and

liabilities based on the new federal statutory rate enacted in December

2017. The Company estimates that its annual effective tax rate for

fiscal 2019 will be between 20 - 22%.

Washington Federal, a national bank with headquarters in Seattle,

Washington, has 235 branches in eight western states. To find out more

about Washington Federal, please visit our website www.washingtonfederal.com.

Washington Federal uses its website to distribute financial and other

material information about the Company.

1 Periods being compared are the quarters ended

December 31, 2015 and March 31, 2019. The Federal Reserve Bank increased

its target rate upper bound from 0.25% to 0.50% on December 17, 2015 and

the target rate upper bound was 2.50% as of March 31, 2019. The 10-year

Treasury rate was 2.30% on December 16, 2015 versus 2.41% on March 31,

2019.

Important Cautionary Statements

The foregoing information should be read in conjunction with the

financial statements, notes and other information contained in the

Company’s 2018 Annual Report on Form 10-K, Quarterly Reports on Form

10-Q and Current Reports on Form 8-K.

This press release contains statements about the Company’s future that

are not statements of historical fact. These statements are “forward

looking statements” for purposes of applicable securities laws, and are

based on current information and/or management's good faith belief as to

future events. The words "estimate," “believe,” “expect,” “anticipate,”

“project,” and similar expressions signify forward-looking statements.

Forward-looking statements should not be read as a guarantee of future

performance. By their nature, forward-looking statements involve

inherent risk and uncertainties, which change over time; and actual

performance could differ materially from those anticipated by any

forward-looking statements. The Company undertakes no obligation to

update or revise any forward-looking statement.



 


 


WASHINGTON FEDERAL, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION




(UNAUDITED)







 



March 31, 2019


September 30, 2018



(In thousands, except share and ratio data)

ASSETS





Cash and cash equivalents


$

279,554



$

268,650


Available-for-sale securities, at fair value


1,545,606



1,314,957


Held-to-maturity securities, at amortized cost


1,553,683



1,625,420


Loans receivable, net of allowance for loan losses of $133,086 and
$129,257


11,894,836



11,477,081


Interest receivable


50,790



47,295


Premises and equipment, net


277,010



267,995


Real estate owned


7,522



11,298


FHLB and FRB stock


138,390



127,190


Bank owned life insurance


219,167



216,254


Intangible assets, including goodwill of $301,368 and $301,368


310,266



311,286


Federal and state income tax assets, net






1,804


Other assets


158,384

 


196,494

 



$

16,435,208

 


$

15,865,724

 

LIABILITIES AND STOCKHOLDERS’ EQUITY





Liabilities





Customer accounts





Transaction deposits


$

6,782,998



$

6,582,343


Time deposits


4,939,365

 


4,804,803

 



11,722,363



11,387,146


FHLB advances


2,610,000



2,330,000


Advance payments by borrowers for taxes and insurance


25,839



57,417


Federal and state income tax liabilities, net


4,180






Accrued expenses and other liabilities


68,546

 


94,253

 



14,430,928



13,868,816


Stockholders’ equity





Common stock, $1.00 par value, 300,000,000 shares authorized;
135,506,620 and 135,343,417 shares issued; 80,435,217 and 82,710,911
shares outstanding


135,507



135,343


Additional paid-in capital


1,669,860



1,666,609


Accumulated other comprehensive (loss) income, net of taxes


8,634



8,294


Treasury stock, at cost; 55,071,403 and 52,632,506 shares


(1,071,957

)


(1,002,309

)

Retained earnings


1,262,236

 


1,188,971

 



2,004,280

 


1,996,908

 



$

16,435,208

 


$

15,865,724

 

CONSOLIDATED FINANCIAL HIGHLIGHTS





Common stockholders' equity per share


$

24.92



$

24.14


Tangible common stockholders' equity per share


21.06



20.38


Stockholders' equity to total assets


12.20

%


12.59

%

Tangible common stockholders' equity to tangible assets


10.51

%


10.84

%





 

Weighted average rates at period end





Loans and mortgage-backed securities


4.32

%


4.19

%

Combined loans, mortgage-backed securities and investments


4.20



4.07


Customer accounts


1.09



0.87


Borrowings


2.77



2.66


Combined cost of customer accounts and borrowings


1.39



1.17


Net interest spread


2.81



2.90








 



 


 


WASHINGTON FEDERAL, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS




(UNAUDITED)







 



Three Months Ended March 31,


Six Months Ended March 31,



2019

 

2018


2019

 

2018



(In thousands, except share and ratio data)


(In thousands, except share and ratio data)

INTEREST INCOME









Loans receivable


$

141,061



$

126,529



$

278,126



$

251,040


Mortgage-backed securities


19,343



17,667



38,535



34,566


Investment securities and cash equivalents


7,178

 


4,883

 


13,543

 


9,253

 



167,582



149,079



330,204



294,859


INTEREST EXPENSE









Customer accounts


29,666



16,414



56,245



31,052


FHLB advances and other borrowings


17,846

 


15,364

 


34,737

 


30,771

 



47,512



31,778



90,982



61,823


Net interest income


120,070



117,301



239,222



233,036


Provision (release) for loan losses


750

 


(950

)


250

 


(950

)

Net interest income after provision (release)


119,320



118,251



238,972



233,986










 

OTHER INCOME









Gain (loss) on sale of investment securities










(9

)





FDIC loss share valuation adjustments














(8,550

)

Loan fee income


667



780



1,637



1,815


Deposit fee income


5,886



6,403



12,129



13,089


Other Income


6,257

 


5,404

 


18,062

 


13,028

 



12,810



12,587



31,819



19,382


OTHER EXPENSE









Compensation and benefits


32,774



31,625



66,657



61,244


Occupancy


9,830



9,013



19,098



17,684


FDIC insurance premiums


1,978



2,852



4,840



5,672


Product delivery


3,545



3,665



7,566



7,621


Information technology


8,755



8,781



17,795



16,710


Other


11,085

 


9,851

 


23,683

 


18,797

 



67,967



65,787



139,639



127,728


Gain (loss) on real estate owned, net


808

 


(278

)


1,128

 


(232

)

Income before income taxes


64,971



64,773



132,280



125,408


Income tax provision


13,873

 


15,502

 


28,240

 


24,467

 

NET INCOME


$

51,098

 


$

49,271

 


$

104,040

 


$

100,941

 









 

PER SHARE DATA









Basic earnings per share


$

0.63



$

0.58



$

1.28



$

1.17


Diluted earnings per share


0.63



0.57



1.28



1.17


Cash dividends per share


0.20



0.17



0.38



0.32


Basic weighted average shares outstanding


80,968,050


85,647,494


81,384,456


86,299,885

Diluted weighted average shares outstanding


80,990,126


85,747,167


81,415,697


86,422,077









 

PERFORMANCE RATIOS









Return on average assets


1.24

%


1.26

%


1.28

%


1.31

%

Return on average common equity


10.20



9.81



10.42



10.03


Net interest margin


3.15



3.25



3.18



3.26


Efficiency ratio


51.15



50.65



51.52



48.94

Contacts

Washington Federal, Inc.

Brad Goode, SVP, Director of Communications

206-626-8178