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Washington Federal Reports Record Earnings

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Washington Federal, Inc. (NASDAQ:WAFD) (the "Company"), parent company
of Washington Federal, N.A. today announced record annual earnings of
$173,532,000 or $1.94 per diluted share for the fiscal year ended
September 30, 2017, compared to $164,049,000 or $1.78 per diluted share
for the year ended September 30, 2016, a $0.16 or 9.0% increase in
earnings per diluted share. Return on equity for the fiscal year ended
September 30, 2017 was 8.64% compared to 8.33% for the year ended
September 30, 2016. Return on assets for the year ended September 30,
2017 was 1.16% compared to 1.12% for the prior year.

President and Chief Executive Officer Brent J. Beardall commented, "We
are pleased to report that Washington Federal closed its 100th year in
business with record earnings, loan originations and total assets. The
market rewarded the Company's shareholders with a total return for the
fiscal year of 29%. It is gratifying to see that efforts to reposition
the bank's interest rate risk over the last few years are paying
dividends, as our margin has increased despite rising short-term rates.
The strong financial performance enabled the Company to return 100% of
earnings to shareholders in the form of cash dividends and share
repurchases during the year and still finish the year with a tangible
common equity to tangible asset ratio of 11.41%."

Total assets were $15.3 billion as of September 30, 2017, a $366 million
or 2.5% increase from September 30, 2016. The Company continued to shift
its asset mix from cash and investment securities to loans receivable,
which carry a higher yield. Since September 30, 2016, cash and cash
equivalents decreased $137 million or 30.5% while available-for-sale
securities decreased $657 million or 34.2% and held-to-maturity
securities slightly offset these with an increase of $229 million or
16.2%. During the same period, net loans receivable increased by $972
million or 9.8%.

During fiscal 2017, the Company's focus on improving its deposit mix
resulted in transaction accounts increasing to 58.7% of deposits at
September 30, 2017 from 56.7% of deposits at September 30, 2016.
Customer deposits were $10.8 billion as of September 30, 2017, an
increase of $234 million or 2.2% since September 30, 2016. Transaction
accounts increased by $356 million or 5.9% during the fiscal year 2017,
while time deposits decreased $121 million or 2.6%. As of September 30,
2017, 27.9% of the Company's deposits were checking accounts and 94.3%
were core deposits.

Borrowings from the Federal Home Loan Bank were $2.2 billion as of
September 30, 2017, a net increase of $145 million or 7.0% since
September 30, 2016. The weighted average rate for FHLB borrowings was
2.80% as of September 30, 2017 and 3.15% at September 30, 2016. Of the
$2.2 billion borrowed as of September 30, 2017, $0.8 billion have
maturities greater than one year.

Loan originations of $4.2 billion for fiscal year 2017 established a new
record and increased $290 million or 7.4% from the total of $3.9 billion
in fiscal year 2016. Partially offsetting this strong loan origination
volume in 2017 were loan repayments of $3.1 billion. During fiscal 2016,
loan repayments totaled $2.9 billion. Commercial loans represented 66.9%
of all loan originations during fiscal 2017 with consumer loans
accounting for the remaining 33.1%. The Company views organic loan
growth as the highest and best use of its capital and prefers commercial
loans in this low rate environment due to the fact they generally have
floating interest rates and shorter durations. The weighted average
interest rate on loans increased to 4.28% as of September 30, 2017 from
4.26% at September 30, 2016, due to the shift toward a higher proportion
of commercial loans and rising short term rates, causing variable rate
loans to increase in yield.

Asset quality remained strong as the ratio of non-performing assets to
total assets decreased to 0.46% as of September 30, 2017, compared to
0.48% at September 30, 2016. Since September 30, 2016, real estate owned
decreased by $8.4 million, or 28.8%, and non-accrual loans increased by
$7.2 million, or 16.9%. Delinquencies on loans were 0.40% of total loans
at September 30, 2017 compared to 0.68% at September 30, 2016. The
Company realized net-recoveries on loans (as opposed to charge-offs) of
$14.3 million for fiscal year 2017. The allowance for loan losses and
reserve for unfunded commitments increased by $14.1 million to $130.8
million as of September 30, 2017 and was 1.07% of gross loans
outstanding, as compared to 1.07% of gross loans as of September 30,
2016.

On August 18, 2017, the Company paid a cash dividend of $0.15 per share
to common stockholders of record on August 4, 2017. This was the
Company's 138th consecutive quarterly cash dividend. During fiscal 2017,
the Company repurchased 3.1 million shares of common stock at a weighted
average price of $31.36 per share and has authorization to repurchase
approximately 1.7 million additional shares. The Company varies the pace
of share repurchases depending on several factors, including share
price, business opportunities and capital levels. In 2017, the Company
paid $7,631,576 to repurchase 478,399 warrants to purchase our common
stock at an average exercise price of $17.46. As of September 30, 2017,
330,217 such warrants remain outstanding. Tangible common stockholders'
equity per share increased by $0.86 or 4.59% during fiscal 2017 to
$19.58 and the ratio of tangible common equity to tangible assets was
11.41% as of September 30, 2017.

Net interest income was $432 million for fiscal 2017, an increase of
$11.7 million or 2.8% from the prior year. The increase in net interest
income was primarily due to a higher average balance of loans receivable
in fiscal 2017. Net interest margin increased to 3.13% in fiscal 2017
from 3.11% for the prior year. The slight increase is primarily due to
changes in the mix of interest earning assets, including a higher yield
on variable rate loans as well as cash and investments.

The Company recorded a release of loan loss allowance of $2.1 million
for fiscal 2017 compared to a release of $6.3 million for the prior
year. The release in fiscal 2017 was a result of continued strong credit
quality, including net recoveries of $14.3 million, partially offset by
growth in loans outstanding.

Total other income was $52.2 million for fiscal year 2017, an increase
of $5.2 million from $47.0 million in the prior year. Fiscal year 2017
included $3.5 million of gain on sale of investment securities as well
as $6.1 million of gains recognized on bank owned life insurance. Fiscal
2016 included a gain of $3.8 million resulting from the sale-leaseback
of a branch property in Sammamish, Washington.

Total operating expenses were $231.5 million for fiscal 2017, a decrease
of $3.9 million or 1.7% from the prior year, primarily due to year over
year decreases in product delivery costs and information technology
costs related to the Company's fiscal 2016 implementation of new
systems. Operating expenses were $62.6 million for the 4th fiscal
quarter of 2017, an increase of $7.2 million or 13.1% from the same
quarter a year ago. The increase was primarily due to elevated
information technology and compliance costs, year-end accrual true-ups
and a $1.5 million correction to amortization of intangible assets
stemming from acquisitions of insurance agency businesses in prior
years. The Company's efficiency ratio of 47.8% for fiscal 2017 is
improved from the 50.8% for the prior year due to lower costs and higher
revenue. The efficiency ratio increased to 48.7% for the 4th fiscal
quarter of 2017 from 48.5% for the same quarter a year ago due primarily
to the expenses noted above.

Net gain on real estate owned was $1.5 million for fiscal 2017 compared
to a net gain of $10.0 million for the prior year. Net gain or loss on
real estate owned is expected to vary from quarter to quarter as it
includes gains and losses on sales, ongoing maintenance expenses and any
additional net valuation adjustments.

For the year ended September 30, 2017, the Company recorded federal and
state income tax expense of $82.7 million, which equates to a 32.27%
effective tax rate. This compares to an effective tax rate of 33.89% for
the prior year. The decline in the effective tax rate from the prior
year is primarily due to new investments in bank owned life insurance,
low income housing tax credits and tax exempt loans since September 30,
2016.

Washington Federal, a national bank with headquarters in Seattle,
Washington, has 237 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.

Important Cautionary Statements

The foregoing information should be read in conjunction with the
financial statements, notes and other information contained in the
Company's 2016 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 "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)

 
 
      September 30, 2017     September 30, 2016
(In thousands, except share data)
ASSETS
Cash and cash equivalents $ 313,070 $ 450,368
Available-for-sale securities, at fair value 1,266,209 1,922,894
Held-to-maturity securities, at amortized cost 1,646,856 1,417,599
Loans receivable, net of allowance for loan losses of $123,073
and $113,494
10,882,622 9,910,920
Interest receivable 41,643 37,669
Premises and equipment, net 263,694 281,951
Real estate owned 20,658 29,027
FHLB and FRB stock 122,990 117,205
Bank owned life insurance 211,330 208,123
Intangible assets, including goodwill of $293,153 and $291,503 298,682 296,989
Federal and state income tax assets, net 16,047
Other assets 185,826   199,271  
$ 15,253,580   $ 14,888,063  
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Customer accounts
Transaction deposit accounts $ 6,361,158 $ 6,005,592
Time deposit accounts 4,473,850   4,595,260  
10,835,008 10,600,852
FHLB advances 2,225,000 2,080,000
Advance payments by borrowers for taxes and insurance 56,631 42,898
Accrued expenses and other liabilities 131,253   188,582  
13,247,892 12,912,332
Stockholders' equity
Common stock, $1.00 par value, 300,000,000 shares authorized; 134,957,511
and 134,307,818 shares issued; 87,193,362 and 89,680,847
shares outstanding
134,958 134,308
Paid-in capital 1,660,885 1,648,388
Accumulated other comprehensive (loss) income, net of taxes 5,015 (11,156 )
Treasury stock, at cost; 47,764,149 and 44,626,971 shares (838,060 ) (739,686 )
Retained earnings 1,042,890   943,877  
2,005,688   1,975,731  
$ 15,253,580   $ 14,888,063  
CONSOLIDATED FINANCIAL HIGHLIGHTS
Common stockholders' equity per share $ 23.00 $ 22.03
Tangible common stockholders' equity per share $ 19.58 $ 18.72
Stockholders' equity to total assets 13.15 % 13.27 %
Tangible common stockholders' equity to tangible assets 11.41 % 11.51 %
 
Weighted average rates at period end
Loans and mortgage-backed securities 3.96 % 3.86 %
Combined loans, mortgage-backed securities and investments 3.82 3.58
Customer accounts 0.53 0.50
Borrowings 2.80 3.15
Combined cost of customer accounts and borrowings 0.91 0.93
Net interest spread 2.91 2.65
 
 

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 
 
      Three Months Ended September 30,     Twelve Months Ended September 30,
2017     2016 2017     2016
(In thousands, except share data) (In thousands, except share data)
INTEREST INCOME
Loans receivable $ 122,197 $ 114,283 $ 470,523 $ 454,085
Mortgage-backed securities 15,605 13,820 60,612 62,949
Investment securities and cash equivalents 4,438   4,769   17,783   19,759  
142,240 132,872 548,918 536,793
INTEREST EXPENSE
Customer accounts 13,850 13,423 52,023 52,485
FHLB advances and other borrowings 15,958   16,633   64,969   64,059  
29,808 30,056 116,992 116,544
Net interest income 112,432 102,816 431,926 420,249
Provision (release) for loan losses (500 ) (3,100 ) (2,100 ) (6,250 )
Net interest income after provision (release) for loan losses 112,932 105,916 434,026 426,499
 
OTHER INCOME
Gain on sale of investments 2,531 3,499
Loan fee income 980 1,764 4,290 5,548
Deposit fee income 6,840 5,174 22,643 21,738
Other income 5,910   8,248   21,783   19,750  
16,261 15,186 52,215 47,036
OTHER EXPENSE
Compensation and benefits 27,483 26,668 112,257 112,884
Occupancy 8,890 7,492 35,260 33,568
FDIC insurance premiums 2,819 3,581 11,410 11,824
Product delivery 3,876 3,421 13,972 17,060
Information technology 9,105 7,150 28,859 30,982
Other expense 10,476   7,095   29,761   29,129  
62,649 55,407 231,519 235,447
Gain (loss) on real estate owned, net 425   (356 ) 1,494   10,046  
Income before income taxes 66,969 65,339 256,216 248,134
Income tax provision 20,865   21,115   82,684   84,085  
NET INCOME $ 46,104   $ 44,224   $ 173,532   $ 164,049  
 
PER SHARE DATA
Basic earnings $ 0.53 $ 0.49 $ 1.95 $ 1.79
Diluted earnings 0.52 0.49 1.94 1.78
Cash dividends per share 0.15 0.14 0.84 0.55
Basic weighted average number of shares outstanding 87,742,200 89,902,181 88,905,457 91,399,038
Diluted weighted average number of shares outstanding 87,952,087 90,468,107 89,224,207 91,912,918
PERFORMANCE RATIOS
Return on average assets 1.22 % 1.19 % 1.16 % 1.12 %
Return on average common equity 9.18 8.96 8.64 8.33
Net interest margin 3.22 3.01 3.13 3.11
Efficiency ratio 48.68 48.54 47.82 50.80

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