Washington Federal, Inc. (Nasdaq: WAFD) (the "Company"), parent
company of Washington Federal Bank, N.A. ("WaFd Bank"), today
announced quarterly earnings of $65,703,000 or $0.84 per diluted
share for the quarter ended December 31, 2019, compared to
$52,942,000 or $0.65 per diluted share for the quarter ended
December 31, 2018, a $0.19 or 29% increase in fully diluted
earnings per share. Return on equity for the quarter ended December
31, 2019 was 12.89% compared to 10.64% for the quarter ended
December 31, 2018. Return on assets for the quarter ended December
31, 2019 was 1.60% compared to 1.32% for the same quarter in the
prior year.
Two significant non-recurring items occurred during the quarter,
with a net positive pre-tax impact of $25.7 million. First, WaFd
Bank sold a branch property in Bellevue, Washington resulting in a
gain of $31.6 million. The sales of real estate are part of the
Company's ongoing initiative to evaluate its portfolio of branches
to meet customer demand, rightsize facilities and enhance the
efficiency of capital investments. Second, WaFd Bank entered into a
contract to enhance and modernize its core banking system that over
the next two years is expected to improve the client experience,
strengthen controls and reduce operating expenses. Related to this
new agreement, WaFd Bank recognized an impairment charge of $5.9
million to existing systems hardware and software.
President and Chief Executive Officer Brent J. Beardall
commented, “We are pleased to start our fiscal year with record net
income and earnings per share. The quarter benefited from two
non-recurring items that generated net positive pre-tax income of
$25.7 million. Our approach of owning the majority of our branch
locations has been beneficial to our shareholders, thanks to the
bull market in commercial real estate, particularly in the Bellevue
and Seattle, Washington markets.
"Operationally, this was a strong quarter for the bank. We
produced record loan originations of $1.4 billion, which were
offset by record loan repayments of $1.3 billion. This level of
repayments is unprecedented for WaFd Bank and is due the drop in
long-term interest rates that occurred in August and September and
a burst of real estate activity in the state of Washington. Many
property owners in Washington accelerated transactions into 2019 to
avoid higher state excise taxes that took effect on January 1,
2020.
"Strategically, we continued to make progress moving our mix of
deposits away from time deposits and toward transaction deposits.
For the first time in our 102-year history, time deposits are now
less than 40% of total deposits. Due to significant investments in
the business, operating expenses are at an elevated level and the
adjusted efficiency ratio was 57% for the quarter. We have
intentionally opted to take some of the non-recurring gains from
this quarter and invest those into our franchise by improving
technologies and processes to deliver a better client experience.
Our strategy to become a digital-first bank will gain meaningful
traction in the coming year. Our clients will benefit from many new
or improved digital experiences across mobile and online banking,
online account opening, mortgage and commercial loan originations,
commercial lock box and credit cards. Underpinning all this will be
a new platform allowing us to better know our customer, anticipate
their financial needs, and serve them in completely new and
compelling ways."
Total assets were $16.4 billion as of December 31, 2019,
compared to $16.5 billion as of September 30, 2019, the Company's
fiscal year-end.
Customer deposits decreased by $59 million or 0.5% since
September 30, 2019, and totaled $11.9 billion as of December 31,
2019. Transaction accounts increased by $231 million or 3.3% during
that period, while time deposits decreased $290 million or 5.9%.
The Company continues to focus on growing transaction accounts to
lessen sensitivity to rising interest rates and manage interest
expense. As of December 31, 2019, 61% of the Company’s deposits
were in transaction accounts. Core deposits, defined as all
transaction accounts and time deposits less than $250,000, totaled
93.7% of deposits at December 31, 2019.
Borrowings from the Federal Home Loan Bank ("FHLB") totaled $2.3
billion as of December 31, 2019, unchanged from $2.3 billion at
September 30, 2019. The weighted average rate of FHLB borrowings
was 2.46% as of December 31, 2019, versus 2.49% at September 30,
2019, the decrease being due to lower rates on new FHLB advances
and maturing advances with higher rates.
The Company had record loan originations of $1.37 billion for
the first fiscal quarter 2020, an increase of 31.3% from the $1.04
billion of originations in the same quarter one year ago. Mostly
offsetting loan originations in each of these quarters were loan
repayments of $1.30 billion and $872 million, respectively.
Commercial loans represented 76% of all loan originations during
the first fiscal quarter 2020 and consumer loans accounted for the
remaining 24%. 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 as they generally have floating
interest rates and shorter durations. The weighted average interest
rate on the loan portfolio was 4.42% as of December 31, 2019, a
decrease from 4.52% as of September 30, 2019, due primarily to
variable rate loans decreasing in yield with declining short-term
rates.
Asset quality remained strong and the ratio of non-performing
assets to total assets improved to 0.24% (the lowest level since
the Great Recession) as of December 31, 2019, compared to 0.27% at
September 30, 2019. Since September 30, 2019, real estate owned
decreased by $442 thousand, or 7%, and non-accrual loans decreased
by $4 million, or 11%. Delinquent loans were 0.30% of total loans
at December 31, 2019, compared to 0.29% at September 30, 2019. The
allowance for loan losses and reserve for unfunded commitments
totaled $140 million as of December 31, 2019, and was 1.04% of
gross loans outstanding, as compared to $138 million, or 1.04%, of
gross loans outstanding at September 30, 2019. Net recoveries were
$2.6 million for the first fiscal quarter of 2020, compared to $1.4
million for the prior year same quarter. The Company has recorded
net recoveries for 18 consecutive quarters, and in 25 of the last
26 quarters.
On November 22, 2019, the Company paid a regular cash dividend
of $0.21 per share, which represented the 147th consecutive
quarterly cash dividend. During the quarter, the Company
repurchased 914,161 shares of common stock at a weighted average
price of $36.62 per share and has authorization to repurchase
7,052,600 additional shares. The Company varies the size and pace
of share repurchases depending on several factors, including share
price, lending opportunities and capital levels. Since September
30, 2019, tangible common shareholders’ equity per share increased
by $0.42, or 1.9%, to $22.28 and the ratio of tangible common
equity to tangible assets was 10.80% as of December 31, 2019.
Net interest income was $120 million for the quarter, an
increase of $0.5 million or 0.4% 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 $357 million while interest-bearing liabilities
increased by $258 million. Net interest margin of 3.15% in the
first fiscal quarter of 2020 was up from 3.12% in the prior
quarter, but down from 3.21% for the same quarter in the prior
year. Compared to the prior year same quarter, the average rate
earned on interest-earning assets declined by 5 basis points while
the average rate paid on interest-bearing liabilities increased 3
basis points. The compression in the net interest margin since the
prior year same quarter is primarily the result of the flattening
of the yield curve.
Due to the strong asset quality indicators previously mentioned,
the Company recorded a release of loan loss allowance of $1 million
in the first fiscal quarter of 2020. In the same quarter of fiscal
2019, the Company recorded a release of loan loss allowance of $500
thousand.
Total other income was $46.4 million for the first fiscal
quarter of 2020, an increase from $19.0 million in the prior year
same quarter. The increase of $27.4 million is primarily due to the
current quarter including a gain of $32.6 million on sales of fixed
assets, including the branch property in Bellevue, Washington,
while the prior year same quarter included a net gain of $6.4
million from the sale and valuation adjustments of fixed
assets.
Total other expense was $82.6 million in the first fiscal
quarter of 2020, an increase of $11.0 million, or 15.3%, from the
prior year's quarter. Information technology costs increased by
$8.1 million, primarily due to a $5.9 million impairment charge on
systems hardware and software. Compensation and benefits costs
increased by $2.7 million, or 8.1%, over the prior year quarter
mostly due to a 4.8% rise in headcount. The Company’s efficiency
ratio in the first fiscal quarter of 2020 was 57.1% (as adjusted,
see Non-GAAP Financial Measures below), compared to 51.9% for the
same period one year ago. The increase in the efficiency ratio is
primarily due to elevated expenses resulting from planned
investments in people, process and technology.
Income tax expense totaled $17.8 million for the first fiscal
quarter of 2020, as compared to $14.4 million for the prior year
same quarter. The effective tax rate for the quarter ended December
31, 2019 was 21.35%, compared to 21.34% for the quarter ended
December 31, 2018. The Company’s effective tax rate for the quarter
ended December 31, 2019 is different from the statutory rate mainly
due to state taxes and tax-exempt income.
WaFd Bank is headquartered in Seattle, Washington, and has 234
branches in eight western states. To find out more about WaFd Bank,
please visit our website www.wafdbank.com. The Company uses its
website to distribute financial and other material information
about the Company.
Non-GAAP Financial
Measures
Adjusted other income of $14.8 million for the three months
ended December 31, 2019 is calculated by subtracting the $31.6
million gain on the sale of the Bellevue, Washington branch
property from GAAP other income of $46.4 million.
Adjusted other expense of $76.7 million for the three months
ended December 31, 2019 is calculated by subtracting the $5.9
million impairment on systems hardware and software from GAAP other
expense of $82.6 million.
Adjusted efficiency ratio of 57.1% for the three months ended
December 31, 2019 is calculated by dividing adjusted other expense
of $76.7 million by adjusted total income of $134.5 million (net
interest income of $119.7 million plus adjusted other income of
$14.8 million). The unadjusted efficiency ratio for the three
months ended December 31, 2019 was 49.8%.
Important Cautionary
Statements
The foregoing information should be read in conjunction with the
financial statements, notes and other information contained in the
Company’s 2019 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)
December 31, 2019
September 30, 2019
(In thousands, except share and
ratio data)
ASSETS
Cash and cash equivalents
$
483,805
$
419,158
Available-for-sale securities, at fair
value
1,495,586
1,485,742
Held-to-maturity securities, at amortized
cost
1,360,694
1,443,480
Loans receivable, net of allowance for
loan losses of $132,513 and $131,534
11,904,861
11,930,575
Interest receivable
46,725
48,857
Premises and equipment, net
245,792
274,015
Real estate owned
6,339
6,781
FHLB and FRB stock
123,990
123,990
Bank owned life insurance
223,533
222,076
Intangible assets, including goodwill of
$302,231 and $301,368
310,477
309,247
Other assets
221,359
210,989
$
16,423,161
$
16,474,910
LIABILITIES AND STOCKHOLDERS’
EQUITY
Liabilities
Transaction deposits
$
7,315,121
$
7,083,801
Time deposits
4,617,017
4,906,963
Total customer deposits
11,932,138
11,990,764
FHLB advances
2,250,000
2,250,000
Advance payments by borrowers for taxes
and insurance
20,899
57,830
Federal and state income tax liabilities,
net
19,443
5,104
Accrued expenses and other liabilities
149,772
138,217
14,372,252
14,441,915
Stockholders’ equity
Common stock, $1.00 par value, 300,000,000
shares authorized; 135,720,374 and 135,539,806 shares issued;
78,107,870 and 78,841,463 shares outstanding
135,720
135,540
Additional paid-in capital
1,673,666
1,672,417
Accumulated other comprehensive income
(loss), net of taxes
15,986
15,292
Treasury stock, at cost; 57,612,504 and
56,698,343 shares
(1,159,642)
(1,126,163)
Retained earnings
1,385,179
1,335,909
2,050,909
2,032,995
$
16,423,161
$
16,474,910
CONSOLIDATED FINANCIAL
HIGHLIGHTS
Common stockholders' equity per share
$
26.26
$
25.79
Tangible common stockholders' equity per
share
22.28
21.86
Stockholders' equity to total assets
12.49
%
12.34
%
Tangible common stockholders' equity (TCE)
to tangible assets (TA)
10.80
%
10.66
%
TCE + allowance for loan losses to TA
11.62
%
11.48
%
Weighted average rates at period
end
Loans and mortgage-backed securities
4.17
%
4.25
%
Combined loans, mortgage-backed securities
and investments
4.00
4.10
Customer accounts
1.02
1.08
Borrowings
2.46
2.49
Combined cost of customer accounts and
borrowings
1.24
1.30
Net interest spread
2.76
2.80
WASHINGTON FEDERAL, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
OPERATIONS
(UNAUDITED)
Three Months Ended December
31,
2019
2018
(In thousands, except share and
ratio data)
INTEREST INCOME
Loans receivable
$
142,146
$
137,065
Mortgage-backed securities
15,612
19,192
Investment securities and cash
equivalents
7,066
6,365
164,824
162,622
INTEREST EXPENSE
Customer accounts
31,481
26,579
FHLB advances and other borrowings
13,658
16,891
45,139
43,470
Net interest income
119,685
119,152
Provision (release) for loan losses
(1,000)
(500)
Net interest income after provision
(release)
120,685
119,652
OTHER INCOME
Gain (loss) on sale of investment
securities
—
(9)
Loan fee income
1,804
970
Deposit fee income
6,260
6,243
Other Income
38,312
11,805
46,376
19,009
OTHER EXPENSE
Compensation and benefits
36,631
33,883
Occupancy
10,135
9,268
FDIC insurance premiums
2,470
2,862
Product delivery
4,267
4,021
Information technology
17,107
9,040
Other
12,026
12,598
82,636
71,672
Gain (loss) on real estate owned, net
(886)
320
Income before income taxes
83,539
67,309
Income tax provision
17,836
14,367
NET INCOME
$
65,703
$
52,942
PER SHARE DATA
Basic earnings per share
$
0.84
$
0.65
Diluted earnings per share
0.84
0.65
Cash dividends per share
0.21
0.18
Basic weighted average shares
outstanding
78,480,264
81,791,852
Diluted weighted average shares
outstanding
78,535,299
81,831,478
PERFORMANCE RATIOS
Return on average assets
1.60
%
1.32
%
Return on average common equity
12.89
10.64
Net interest margin
3.15
3.21
Efficiency ratio (a)
57.05
51.88
(a) Efficiency ratio for the three months
ended December 31, 2019 excludes the impact of $31.6 million gain
on sales of fixed assets and $5.9 million impairment charge on
computer hardware and software.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200114005879/en/
Washington Federal, Inc. 425 Pike Street, Seattle, WA 98101 Brad
Goode, SVP, Director of Communications 206-626-8178
brad.goode@wafd.com
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