Market Overview

Washington Federal Announces Record Quarterly Earnings Per Share Of $0.61


Washington Federal, Inc. (NASDAQ:WAFD) (the "Company"), parent company
of Washington Federal, National Association, today announced record
quarterly earnings of $51,394,000 or $0.61 per diluted share for the
quarter ended June 30, 2018 compared to $44,112,000 or $0.49 per diluted
share for the quarter ended June 30, 2017, a $0.12 or 24% increase in
fully diluted earnings per share. Return on equity for the quarter ended
June 30, 2018 was 10.30% compared to 8.70% for the quarter ended
June 30, 2017. Return on assets for the quarter ended June 30, 2018 was
1.31% compared to 1.17% for the same quarter in the prior year.

President and Chief Executive Officer Brent J. Beardall commented, "The
Company's 24% increase in earnings per share is attributable to loan
growth, improved net interest margin, fewer shares outstanding and a
lower tax rate. It is notable that these results are inclusive of a 17%
increase in operating costs, which include previously announced
investments in our colleagues, technology and higher regulatory
compliance costs. We are pleased that the impact of rising short-term
interest rates on our funding costs has been more than offset by the
combination of the re-pricing of variable rate assets and loan growth."

On July 17, 2018, the Company and Anchor Bancorp ("Anchor") mutually
agreed to terminate the previously announced Agreement and Plan of
Merger dated as of April 11, 2017, as amended. President and Chief
Executive Officer Brent J. Beardall commented, "We are disappointed the
transaction will not be consummated, but wish to thank the Board and
Management of Anchor for their cooperation during this process. We wish
Anchor the best going forward."

Total assets were $15.8 billion as of June 30, 2018 compared to $15.3
billion as of September 30, 2017, the Company's fiscal year-end. Asset
growth since September 30, 2017 resulted primarily from a $443 million
increase in net loans receivable.

Customer deposits increased by $452 million or 4.2% since September 30,
2017 and totaled $11.3 billion as of June 30, 2018. Transaction accounts
increased by $212 million or 3.3% during that period, while time
deposits increased $241 million or 5.4%. The Company continues to focus
on growing transaction accounts to lessen sensitivity to rising interest
rates and reduce interest expense. As of June 30, 2018, 58.2% of the
Company's deposits were in transaction accounts. Core deposits, defined
as all transaction accounts and time deposits less than $250,000,
totaled 93.6% of deposits at June 30, 2018.

Borrowings from the Federal Home Loan Bank ("FHLB") totaled $2.4 billion
as of June 30, 2018 and $2.2 billion at September 30, 2017. The weighted
average rate for FHLB borrowings was 2.64% as of June 30, 2018 and 2.80%
at September 30, 2017, the decline being due to the refinancing of some
long-term FHLB advances that matured.

Loan originations totaled $1,096 million for our third fiscal quarter
2018 compared to $1,031 million of originations in the same quarter one
year ago. Partially offsetting loan originations in each of these
quarters were loan repayments of $891 million and $793 million,
respectively. Commercial loans represented 68% of all loan originations
during our third fiscal quarter 2018 and consumer loans accounted for
the remaining 32%. The Company views organic loan growth as the highest
and best use of its capital and prefers commercial loans as they
generally have floating interest rates and shorter durations. The
weighted average interest rate on loans was 4.42% as of June 30, 2018,
an increase from 4.28% as of September 30, 2017.

Asset quality remained strong and the ratio of non-performing assets to
total assets improved to 0.46% as of June 30, 2018 compared to 0.50% at
June 30, 2017 and 0.46% at September 30, 2017. Since September 30, 2017,
real estate owned decreased by $9 million, or 45%, and non-accrual loans
increased by $11 million, or 22%. Delinquent loans were 0.40% of total
loans at June 30, 2018 compared to 0.50% at June 30, 2017 and 0.40% at
September 30, 2017. The allowance for loan losses and reserve for
unfunded commitments totaled $135 million as of June 30, 2018 and was
1.06% of gross loans outstanding, as compared to $131 million or 1.07%
of gross loans outstanding at September 30, 2017.

On May 25, 2018, the Company paid a regular cash dividend of $0.17 per
share, which represented the 141st consecutive quarterly cash dividend.
During the quarter, the Company repurchased 1,224,384 shares of common
stock at a weighted average price of $32.64 per share and has
authorization to repurchase 2,855,765 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, 2017, tangible common stockholders' equity per share
increased by $0.47 or 2.4% to $20.05 and the ratio of tangible common
equity to tangible assets remained strong at 10.83% as of June 30, 2018.

Net interest income was $120 million for the quarter, an increase of
$11.2 million or 10.3% from the same quarter in the prior year. The
increase in net interest income from the prior year was primarily due to
both higher balances and yield. Average earning assets increased by $710
million, or 5.1%. Net interest margin increased to 3.29% in the third
fiscal quarter of 2018 from 3.13% for the same quarter in the prior
year. The margin increase is primarily due to changes in the mix of
interest earning assets, higher yields on variable rate loans, cash and
investments, as well as a lower rate on FHLB advances due to the
maturity of some higher cost long-term advances.

The Company recorded a provision for loan losses of $1.0 million in the
third fiscal quarter of 2018 compared with no provision in the same
quarter of 2017. Net recoveries were $90 thousand for the third fiscal
quarter of 2018 compared to $1.3 million for the prior year's quarter.

Total other income was $12.5 million for the third fiscal quarter of
2018, a decrease of $1.5 million from $13.9 million in the same quarter
of the prior year. The decrease is primarily due to gains recognized on
bank owned life insurance in the prior year. Deposit fee income
increased by $0.7 million from the prior year due to the full roll-out
of the Company's new "Green Checking" product since that time. In May
2018, the Company terminated all of its FDIC loss share agreements. All
future recoveries, gains, losses and expenses related to the previously
covered assets will now be recognized entirely by the Company and the
FDIC will no longer share in such gains or losses.

Total operating expenses were $67.0 million in the third fiscal quarter
of 2018, an increase of $9.9 million or 17.4% from the prior year's
quarter. In the current quarter the Company had Bank Secrecy Act (BSA)
related costs of approximately $4.9 million and projects that it will
incur an additional $10 million of non-recurring costs for BSA
improvements spread over the next four quarters. Once the program is
steadied, BSA costs are expected to be approximately $2 million per
quarter. Compensation and benefits costs increased by $2.3 million over
the prior year quarter primarily due to headcount increases and cost of
living adjustments since last year. Information technology costs
increased by $3.5 million and other expenses increased by $2.7 million
as both were elevated primarily due to the aforementioned BSA program
enhancements and other technology platform improvements. The Company's
efficiency ratio in the third fiscal quarter of 2018 was 50.6% compared
to 46.6% for the same period one year ago. The increase in the
efficiency ratio is due to the elevated expenses noted above. The
efficiency ratio was 49.5% for the nine months ended June 30, 2018.

On December 22, 2017, a new tax law was enacted that provides for
significant changes to the U.S. Internal Revenue Code of 1986, as
amended, such as a reduction in the federal corporate tax rate from 35%
to 21% effective from January 1, 2018 forward and changes or limitations
to certain tax deductions. The Company has a fiscal year end of
September 30, resulting in a blended federal statutory tax rate for its
fiscal year 2018. The financial statements for the first fiscal quarter
of 2018 were impacted by discrete tax benefits of $3.7 million related
to the revaluation of deferred tax assets and liabilities as well as tax
benefits related to stock based compensation. For the nine months ended
June 30, 2018, the Company recorded federal and state income tax expense
of $37.6 million, which equates to a 19.8% effective tax rate. The
Company estimates that its annual effective tax rate for its full fiscal
2018 (blended rate year) will be approximately 21%. This compares to an
effective tax rate of 32.3% for the fiscal year ended September 30, 2017.

Washington Federal, a national bank with headquarters in Seattle,
Washington, has 236 branches in eight western states. To find out more
about Washington Federal, please visit our website
Washington Federal uses its website to distribute financial and other
material information about the Company.

Non-GAAP Financial Measures

Adjusted pre-tax income of $198.5 million for the nine months ended
June 30, 2018 is calculated by adding back the FDIC loss share valuation
adjustments of $8.6 million to pre-tax income of $189.9 million. The
$8.6 million valuation adjustment was recorded in the quarter ended
December 31, 2017.

Adjusted other income of $40.4 million for the nine months ended
June 30, 2018 is calculated by adding back the FDIC loss share valuation
adjustments of $8.6 million to other income of $31.8 million.

Adjusted efficiency ratio of 49.5% for the nine months ended June 30,
2018 is calculated by dividing total operating expense of $194.7 million
by adjusted total income of $393.3 million (net interest income of
$352.9 million plus adjusted other income of $40.4 million).

Important Cautionary Statements

The foregoing information should be read in conjunction with the
financial statements, notes and other information contained in the
Company's 2017 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.

June 30, 2018 September 30, 2017
(In thousands, except share and ratio data)
Cash and cash equivalents $ 345,919 $ 313,070
Available-for-sale securities, at fair value 1,255,401 1,266,209
Held-to-maturity securities, at amortized cost 1,670,450 1,646,856
Loans receivable, net of allowance for loan losses of $128,666 and
11,325,971 10,882,622
Interest receivable 43,670 41,643
Premises and equipment, net 269,674 263,694
Real estate owned 11,275 20,658
FHLB and FRB stock 128,790 122,990
Bank owned life insurance 214,752 211,330
Intangible assets, including goodwill of $301,368 and $293,153 311,796 298,682
Federal and state income tax assets, net 4,293
Other assets 184,330   185,826  
$ 15,766,321   $ 15,253,580  
Customer accounts
Transaction deposit accounts $ 6,572,766 $ 6,361,158
Time deposit accounts 4,714,707   4,473,850  
11,287,473 10,835,008
FHLB advances 2,370,000 2,225,000
Advance payments by borrowers for taxes and insurance 32,632 56,631
Accrued expenses and other liabilities 89,953   131,253  
13,780,058 13,247,892
Stockholders' equity
Common stock, $1.00 par value, 300,000,000 shares authorized;
135,343,437 and 134,957,511 shares issued; 83,534,098 and 87,193,362
shares outstanding
135,344 134,958
Additional paid-in capital 1,665,421 1,660,885
Accumulated other comprehensive (loss) income, net of taxes 8,137 5,015
Treasury stock, at cost; 51,809,339 and 47,764,149 shares (975,001 ) (838,060 )
Retained earnings 1,152,362   1,042,890  
1,986,263   2,005,688  
$ 15,766,321   $ 15,253,580  
Common stockholders' equity per share $ 23.78 $ 23.00
Tangible common stockholders' equity per share 20.05 19.58
Stockholders' equity to total assets 12.60 % 13.15 %
Tangible common stockholders' equity to tangible assets 10.83 % 11.41 %
Weighted average rates at period end
Loans and mortgage-backed securities 4.13 % 3.96 %
Combined loans, mortgage-backed securities and investments 4.01 3.82
Customer accounts 0.75 0.54
Borrowings 2.64 2.80
Combined cost of customer accounts and borrowings 1.08 0.92
Net interest spread 2.93 2.90
Three Months Ended June 30, Nine Months Ended June 30,
2018   2017 2018   2017
(In thousands, except share and ratio data) (In thousands, except share and ratio data)
Loans receivable $ 131,541 $ 117,457 $ 382,581 $ 348,326
Mortgage-backed securities 18,022 15,992 52,588 45,007
Investment securities and cash equivalents 5,509   4,267   14,762   13,345  
155,072 137,716 449,931 406,678
Customer accounts 18,887 12,764 49,939 38,173
FHLB advances and other borrowings 16,333   16,337   47,104   49,011  
35,220 29,101 97,043 87,184
Net interest income 119,852 108,615 352,888 319,494
Provision (release) for loan losses 1,000     50   (1,600 )
Net interest income after provision (release) for loan losses 118,852 108,615 352,838 321,094
Gain on sale of investment securities 968
FDIC loss share valuation adjustments (8,550 )
Loan fee income 1,094 889 2,909 3,310
Deposit fee income 6,411 5,714 19,500 15,803
Other Income 4,946   7,319   17,974   15,873  
12,451 13,922 31,833 35,954
Compensation and benefits 31,223 28,947 92,467 84,774
Occupancy 9,095 8,829 26,779 26,370
FDIC insurance premiums 2,950 2,842 8,622 8,591
Product delivery 4,356 3,246 11,977 10,096
Information technology 10,118 6,617 26,828 19,754
Other 9,235   6,581   28,032   19,285  
66,977 57,062 194,705 168,870
Gain (loss) on real estate owned, net 168   (124 ) (64 ) 1,069  
Income before income taxes 64,494 65,351 189,902 189,247
Income tax provision 13,100   21,239   37,567   61,819  
NET INCOME $ 51,394   $ 44,112   $ 152,335   $ 127,428  
Basic earnings per share $ 0.61 $ 0.49 $ 1.78 $ 1.43
Diluted earnings per share 0.61 0.49 1.78 1.42
Cash dividends per share 0.17 0.15 0.49 0.69
Basic weighted average shares outstanding 84,168,992 89,199,823 85,589,588 89,297,471
Diluted weighted average shares outstanding 84,252,659 89,497,264 85,698,888 89,653,955
Return on average assets 1.31 % 1.17 % 1.31 % 1.14 %
Return on average common equity 10.30 8.70 10.12 8.46
Net interest margin 3.29 3.13 3.27 3.10
Efficiency ratio (a) 50.62 46.57 49.51 47.51
(a) Efficiency ratio for the nine months ended June 30, 2018
excludes the impact of $8.55 million reduction to other income
related to FDIC loss share valuation adjustments.

View Comments and Join the Discussion!
Lightning Fast
Market News Service
$199 Free 14 Day Trial