Market Overview

Washington Federal Reports Record Earnings


Washington Federal, Inc. (NASDAQ:WAFD) (the "Company"), parent company
of Washington Federal, N.A. today announced record annual earnings of
$203,850,000 or $2.40 per diluted share for the fiscal year ended
September 30, 2018, compared to $173,532,000 or $1.94 per diluted share
for the year ended September 30, 2017, a $0.46 or 23.7% increase in
earnings per diluted share. Return on equity for the fiscal year ended
September 30, 2018 was 10.16% compared to 8.64% for the year ended
September 30, 2017. Return on assets for the year ended September 30,
2018 was 1.31% compared to 1.16% for the prior year.

President and Chief Executive Officer Brent J. Beardall commented, "We
are pleased to report that Washington Federal closed its 101st
year in business with record earnings due to strong loan and deposit
growth, top line revenue growth, lower tax expense, solid credit quality
and technological improvements to better serve our clients. It is
gratifying to see that efforts to reposition the Company's interest rate
risk over the last decade are paying dividends. Our net interest income
increased by 9.31% for the year despite rising short-term interest
rates. Strong financial performance enabled the Company to return 108%
of earnings to shareholders during fiscal year 2018 in the form of cash
dividends and share repurchases and still finish the year with a
tangible common equity to tangible asset ratio of 10.84%, which ranked
us in the top 10% of the largest 100 publicly traded banks in the United

Total assets were $15.9 billion as of September 30, 2018, a $612 million
or 4.0% increase from September 30, 2017. Asset growth since
September 30, 2017 resulted primarily from a $594 million or 5.5%
increase in net loans receivable.

Customer deposits were $11.4 billion as of September 30, 2018, an
increase of $552 million or 5.1% since September 30, 2017. Transaction
accounts increased by $221 million or 3.5% during the fiscal year 2018,
while time deposits increased $331 million or 7.4%. As of September 30,
2018, 57.8% of the Company's deposits were in transaction accounts. Core
deposits, defined as all transaction accounts and time deposits less
than $250,000, totaled 93.4% of deposits at September 30, 2018.

Borrowings from the Federal Home Loan Bank ("FHLB") totaled $2.3 billion
as of September 30, 2018, a net increase of $105 million or 4.7% since
September 30, 2017. The weighted average rate for FHLB borrowings was
2.66% as of September 30, 2018 and 2.80% at September 30, 2017. The
decline of 14 basis points is due to the maturity of some higher cost
long-term FHLB advances. $650 million of the $2.3 billion advances
outstanding at September 30, 2018 have effective maturities greater than
one year.

Loan originations totaled $3.8 billion for fiscal year 2018, a decrease
from the total of $4.2 billion in fiscal year 2017. Partially offsetting
the loan origination volume in 2018 were loan repayments of $3.3
billion. During fiscal 2017, loan repayments totaled $3.1 billion.
Commercial loans represented 67% of all loan originations during fiscal
2018 with consumer loans accounting for the remaining 33%. 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 4.48% as of
September 30, 2018 from 4.28% at September 30, 2017, due primarily to
variable rate loans increasing in yield with rising short-term interest

Asset quality remained strong as the ratio of non-performing assets to
total assets improved to 0.44% as of September 30, 2018, compared to
0.46% at September 30, 2017. Since September 30, 2017, real estate owned
decreased by $9.4 million, other property owned increased by $3.1
million and non-accrual loans increased by $6.1 million. Delinquencies
on loans were 0.42% of total loans at September 30, 2018 compared to
0.40% at September 30, 2017. The Company realized net recoveries on
loans (as opposed to charge-offs) of $11.1 million for fiscal year 2018.
The allowance for loan losses and reserve for unfunded commitments
increased by $5.7 million to $136.5 million as of September 30, 2018 and
was 1.06% of gross loans outstanding, as compared to 1.07% of gross
loans as of September 30, 2017.

On August 24, 2018, the Company paid a cash dividend of $0.18 per share
to common stockholders of record on August 10, 2018. This was the
Company's 142nd consecutive quarterly cash dividend. During
fiscal 2018, the Company repurchased 4.9 million shares of common stock
at a weighted average price of $33.74 per share and has authorization to
repurchase approximately 2.0 million additional shares. The Company
varies the pace of share repurchases depending on several factors,
including share price, business opportunities and capital levels.
Tangible common stockholders' equity per share increased by $0.80 or
4.10% during fiscal 2018 to $20.38 and the ratio of tangible common
equity to tangible assets was 10.84% as of September 30, 2018.

Net interest income was $472.1 million for fiscal 2018, an increase of
$40.2 million or 9.3% from the prior year. The increase in net interest
income was primarily due to both higher average balances and higher
rates on interest-earning assets in fiscal 2018. Average earning assets
increased by $655.8 million or 4.75%. Net interest margin increased to
3.27% in fiscal 2018 from 3.13% for 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 release of loan loss allowance of $5.5 million
for fiscal 2018 compared to a release of $2.1 million for the prior
year. The release in fiscal 2018 was a result of continued strong credit
quality, including net recoveries of $11.1 million, partially offset by
growth in loans outstanding.

Total other income was $44.1 million for fiscal year 2018, a decrease of
$8.1 million from $52.2 million in the prior year. The decrease from the
prior year was primarily due to $8.6 million of expense from asset and
liability valuation adjustments associated with the termination of the
Company's FDIC loss-share agreements in fiscal year 2018. Deposit fee
income was $3.3 million higher in fiscal year 2018 than in 2017. Fiscal
year 2017 included a gain of $3.5 million on the sale of
available-for-sale investment securities, while there were no such sales
in fiscal year 2018.

Total operating expenses were $264.3 million for fiscal 2018, an
increase of $32.8 million or 14.2% from the prior year. The Company took
the opportunity allotted by the change in the tax law to make several
strategic investments that resulted in higher operating expenses for the
year. Those investments included a 5% salary increase for all employees
earning less than $100,000; the establishment of a second technology
team located in Boise, Idaho; the creation of an internal training team;
and several new processes and systems. Compensation and benefits costs
increased $11.3 million year-over-year primarily due to headcount
increases and cost-of-living adjustments. Information technology costs
increased by $5.8 million and other expenses increased by $11.9 million
as both were elevated primarily due to Bank Secrecy Act ("BSA") program
enhancements and other technology platform improvements. Operating
expenses were $69.6 million for the 4th fiscal quarter of
2018, an increase of $7.0 million or 11.1% from the same quarter a year
ago. In the 4th fiscal quarter of 2018, the Company had
approximately $4.1 million of non-recurring BSA related costs and
estimates that it will incur an additional $6.0 million of non-recurring
costs for BSA program improvements spread over the next three quarters.
Compensation and benefits costs were $3.6 million higher in the 4th
fiscal quarter of 2018 than they were in the same quarter of the prior
year primarily due to headcount increases and cost-of-living
adjustments. The Company's efficiency ratio of 50.4% for fiscal 2018 is
higher than the 47.8% for the prior year. The efficiency ratio increased
to 52.9% for the 4th fiscal quarter of 2018 from 48.7% for
the same quarter a year ago. The increased efficiency ratios are due to
higher expenses noted above partially offset by higher revenue in the
respective periods.

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. Tax expense for fiscal year 2018 includes a number of
discrete items, the largest of which is a discrete tax benefit of $5.4
million related to the revaluation of deferred tax assets and
liabilities to reflect the change in statutory tax rate. For the year
ended September 30, 2018, the Company recorded federal and state income
tax expense of $53.4 million, which equates to a 20.76% effective tax
rate. This compares to an effective tax rate of 32.27% for fiscal year

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
Washington Federal uses its website to distribute financial and other
material information about the Company.

Non-GAAP Financial Measures

Adjusted pre-tax income of $265.8 million for fiscal year 2018 is
calculated by adding back the FDIC loss-share valuation adjustments of
$8.6 million to pre-tax income of $257.2 million. The $8.6 million
valuation adjustment was recorded in the quarter ended December 31, 2017.

Adjusted other income of $52.6 million for fiscal year 2018 is
calculated by adding back the FDIC loss-share valuation adjustments of
$8.6 million to other income of $44.1 million.

Adjusted efficiency ratio of 50.4% for fiscal year 2018 is calculated by
dividing total operating expense of $264.3 million by adjusted total
income of $524.8 million (net interest income of $472.1 million plus
adjusted other income of $52.6 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.




  September 30, 2018   September 30, 2017
(In thousands, except share data)
Cash and cash equivalents $ 268,650 $ 313,070
Available-for-sale securities, at fair value 1,314,957 1,266,209
Held-to-maturity securities, at amortized cost 1,625,420 1,646,856
Loans receivable, net of allowance for loan losses of $129,257 and
11,477,081 10,882,622
Interest receivable 47,295 41,643
Premises and equipment, net 267,995 263,694
Real estate owned 11,298 20,658
FHLB and FRB stock 127,190 122,990
Bank owned life insurance 216,254 211,330
Intangible assets, including goodwill of $301,368 and $293,153 311,286 298,682
Federal and state income tax assets, net 1,804
Other assets 196,494   185,826  
$ 15,865,724   $ 15,253,580  
Customer accounts
Transaction deposit accounts $ 6,582,343 $ 6,361,158
Time deposit accounts 4,804,803   4,473,850  
11,387,146 10,835,008
FHLB advances 2,330,000 2,225,000
Advance payments by borrowers for taxes and insurance 57,417 56,631
Accrued expenses and other liabilities 94,253   131,253  
13,868,816 13,247,892
Stockholders' equity
Common stock, $1.00 par value, 300,000,000 shares authorized;
135,343,417 and 134,957,511 shares issued; 82,710,911 and 87,193,362
shares outstanding
135,343 134,958
Paid-in capital 1,666,609 1,660,885
Accumulated other comprehensive (loss) income, net of taxes 8,294 5,015
Treasury stock, at cost; 52,632,506 and 47,764,149 shares (1,002,309 ) (838,060 )
Retained earnings 1,188,971   1,042,890  
1,996,908   2,005,688  
$ 15,865,724   $ 15,253,580  
Common stockholders' equity per share $ 24.14 $ 23.00
Tangible common stockholders' equity per share $ 20.38 $ 19.58
Stockholders' equity to total assets 12.59 % 13.15 %
Tangible common stockholders' equity to tangible assets 10.84 % 11.41 %
Weighted average rates at period end
Loans and mortgage-backed securities 4.19 % 3.96 %
Combined loans, mortgage-backed securities and investments 4.07 3.82
Customer accounts 0.87 0.54
Borrowings 2.66 2.80
Combined cost of customer accounts and borrowings 1.17 0.92
Net interest spread 2.90 2.90




Three Months Ended
September 30,


Twelve Months Ended
September 30,

2018   2017 2018   2017
(In thousands, except share data) (In thousands, except share data)
Loans receivable $ 133,226 $ 122,197 $ 515,807 $ 470,523
Mortgage-backed securities 17,819 15,605 70,407 60,612
Investment securities and cash equivalents 6,107   4,438   20,869   17,783  
157,152 142,240 607,083 548,918
Customer accounts 22,553 13,850 72,492 52,023
FHLB advances and other borrowings 15,348   15,958   62,452   64,969  
37,901 29,808 134,944 116,992
Net interest income 119,251 112,432 472,139 431,926
Provision (release) for loan losses (5,500 ) (500 ) (5,450 ) (2,100 )
Net interest income after provision (release) for loan losses 124,751 112,932 477,589 434,026
Gain on sale of investment securities 2,531 3,499
FDIC loss share valuation adjustments (8,550 )
Loan fee income 895 980 3,804 4,290
Deposit fee income 6,404 6,840 25,904 22,643
Other income 4,946   5,910   22,920   21,783  
12,245 16,261 44,078 52,215
Compensation and benefits 31,087 27,483 123,554 112,257
Occupancy 9,674 8,890 36,453 35,260
FDIC insurance premiums 2,970 2,819 11,592 11,410
Product delivery 4,395 3,876 16,372 13,972
Information technology 7,815 9,105 34,643 28,859
Other expense 13,676   10,476   41,708   29,761  
69,617 62,649 264,322 231,519
Gain (loss) on real estate owned, net (38 ) 425   (102 ) 1,494  
Income before income taxes 67,341 66,969 257,243 256,216
Income tax provision 15,826   20,865   53,393   82,684  
NET INCOME $ 51,515   $ 46,104   $ 203,850   $ 173,532  
Basic earnings $ 0.62 $ 0.53 $ 2.40 $ 1.95
Diluted earnings 0.62 0.52 2.40 1.94
Cash dividends per share 0.18 0.15 0.67 0.84
Basic weighted average number of shares outstanding 83,280,730 87,742,200 85,008,040 88,905,457
Diluted weighted average number of shares outstanding 83,361,122 87,952,087 85,109,843 89,224,207
Return on average assets 1.31 % 1.22 % 1.31 % 1.16 %
Return on average common equity 10.29 9.18 10.16 8.64
Net interest margin 3.26 3.22 3.27 3.13
Efficiency ratio (a) 52.94 48.68 50.37 47.82
(a) Efficiency ratio for the year ended September 30, 2018 excludes
the impact of $8.55 million reduction to non-interest income related
to FDIC loss share valuation adjustments.

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