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Washington Federal Announces Record Quarterly Earnings Per Share Of $0.67

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Washington Federal, Inc. (NASDAQ:WAFD) (the "Company"), parent company of Washington Federal Bank, National Association, today announced record quarterly earnings of $53,854,000 or $0.67 per diluted share for the quarter ended June 30, 2019, compared to $51,394,000 or $0.61 per diluted share for the quarter ended June 30, 2018, a $0.06 or 10% increase in fully diluted earnings per share. Return on equity for the quarter ended June 30, 2019 was 10.68% compared to 10.30% for the quarter ended June 30, 2018. Return on assets for the quarter ended June 30, 2019 was 1.31% compared to 1.31% for the same quarter in the prior year.

President and Chief Executive Officer Brent J. Beardall commented, "Our third fiscal quarter produced record net income as we continued to experience steady growth in loans and deposits. Credit risk remains benign, but we have seen an uptick in economic uncertainty related to threatened tariffs and the relatively flat yield curve. However, we are optimistic as our primary markets continue to experience net immigration and robust job growth. Operationally, we have made improvements to our Bank Secrecy Act programs and procedures and will continue to make needed investments. As we transform over the next few years into a digital first bank, we see significant potential to improve our digital platforms with the objective of increasing deposit market share."

Total assets were $16.5 billion as of June 30, 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 $497 million or 4.33% increase in net loans receivable.

Customer deposits increased by $413 million or 3.6% since September 30, 2018, reaching a total of $11.8 billion as of June 30, 2019. Transaction accounts increased by $268 million or 4.1% during that period, while time deposits increased $146 million or 3.0%. The Company continues to focus on growing transaction accounts to lessen sensitivity to rising interest rates and manage interest expense. As of June 30, 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 93.3% of deposits at June 30, 2019.

Borrowings from the Federal Home Loan Bank ("FHLB") totaled $2.5 billion as of June 30, 2019, versus $2.3 billion at September 30, 2018. The weighted average rate of FHLB borrowings was 2.58% as of June 30, 2019, versus 2.66% at September 30, 2018, the decrease being due to lower rates on new FHLB advances and maturing advances with higher rates.

Loan originations totaled $1.00 billion for the third fiscal quarter 2019, a decrease of 8.6% from the $1.10 billion of originations in the same quarter one year ago. Partially offsetting loan originations in each of these quarters were loan repayments of $930 million and $891 million, respectively. Commercial loans represented 69% of all loan originations during the third fiscal quarter 2019 and consumer loans accounted for the remaining 31%. 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 as they generally have floating interest rates and shorter durations. The weighted average interest rate on the loan portfolio was 4.61% as of June 30, 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 0.31% as of June 30, 2019, compared to 0.46% at June 30, 2018 and 0.44% at September 30, 2018. Since September 30, 2018, real estate owned decreased by $4 million, or 38%, and non-accrual loans decreased by $15 million, or 26%. Delinquent loans were 0.35% of total loans at June 30, 2019, compared to 0.40% at June 30, 2018 and 0.42% at September 30, 2018. The allowance for loan losses and reserve for unfunded commitments totaled $140 million as of June 30, 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 $0.9 million for the third fiscal quarter of 2019, compared to $0.1 million for the prior year's quarter. The Company has recorded net recoveries for 16 consecutive quarters, and in 23 of the last 24 quarters.

On May 24, 2019, the Company paid a regular cash dividend of $0.20 per share, which represented the 145th consecutive quarterly cash dividend. During the quarter, the Company repurchased 1,056,460 shares of common stock at a weighted average price of $32.45 per share and has authorization to repurchase 8,537,241 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, 2018, tangible common stockholders' equity per share increased by $1.07, or 5.2%, to $21.45. The ratio of tangible common equity to tangible assets remained strong at 10.54% as of June 30, 2019, compared to 10.84% at September 30, 2018.

Net interest income was $122 million for the quarter, an increase of $1.8 million or 1.5% 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 $730 million while interest-bearing liabilities increased by $720 million. Net interest margin decreased to 3.18% in the third fiscal quarter of 2019, from 3.29% for the same quarter in the prior year as the average rate earned on interest-earning assets rose by 24 basis points while the average rate paid on interest-bearing liabilities increased 36 basis points. The compression in the net interest margin is primarily the result of the flat to inverted yield curve.

Due to the strong asset quality indicators previously mentioned, the Company did not record any provision for loan losses in the third fiscal quarter of 2019. In the same quarter of fiscal 2018, the Company recorded a provision for loan losses of $1 million.

Total other income was $14.0 million for the third fiscal quarter of 2019, an increase from $12.5 million in the same quarter of the prior year.

Total operating expenses were $70.9 million in the third fiscal quarter of 2019, an increase of $3.9 million, or 5.9%, 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 $3.1 million over the prior year quarter primarily due to the aforementioned investments. Other expenses increased by $1.3 million, primarily due to ongoing Bank Secrecy Act (BSA) program enhancements. In the third fiscal quarter of 2019, the Company had approximately $1.1 million of non-recurring BSA related costs. The Company's efficiency ratio in the third fiscal quarter of 2019 was 52.2%, compared to 50.6% 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 $11.3 million for the three months ended June 30, 2019, as compared to $13.9 million for the prior quarter and $13.1 million for the three months ended June 30, 2018. Income tax expense totaled $39.5 million for the nine months ended June 30, 2019, as compared to $37.6 million for the nine months ended June 30, 2018. The effective tax rate for the nine months ended June 30, 2019 was 20.0%, compared to 19.8% for the nine months ended June 30, 2018. The Company's effective tax rate for the nine months ended June 30, 2019 is lower than the statutory rate mainly due to a one-time tax benefit recorded in the third fiscal quarter related to the resolution of a previously unrecognized tax position. The Company estimates that its effective tax rate going forward will be approximately 21%.

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.wafdbank.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 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.

 

June 30, 2019

 

September 30, 2018

 

(In thousands, except share and ratio data)

ASSETS

 

 

 

Cash and cash equivalents

$

289,828

 

 

$

268,650

 

Available-for-sale securities, at fair value

1,507,937

 

 

1,314,957

 

Held-to-maturity securities, at amortized cost

1,508,175

 

 

1,625,420

 

Loans receivable, net of allowance for loan losses of $134,022 and $129,257

11,974,533

 

 

11,477,081

 

Interest receivable

48,004

 

 

47,295

 

Premises and equipment, net

275,640

 

 

267,995

 

Real estate owned

7,003

 

 

11,298

 

FHLB and FRB stock

134,190

 

 

127,190

 

Bank owned life insurance

220,610

 

 

216,254

 

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

309,757

 

 

311,286

 

Federal and state income tax assets, net

 

 

1,804

 

Other assets

192,848

 

 

196,494

 

 

$

16,468,525

 

 

$

15,865,724

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

Liabilities

 

 

 

Transaction deposits

$

6,849,850

 

 

$

6,582,343

 

Time deposits

4,950,320

 

 

4,804,803

 

Total customer deposits

11,800,170

 

 

11,387,146

 

FHLB advances

2,505,000

 

 

2,330,000

 

Advance payments by borrowers for taxes and insurance

33,949

 

 

57,417

 

Federal and state income tax liabilities, net

2,364

 

 

 

Accrued expenses and other liabilities

114,308

 

 

94,253

 

 

14,455,791

 

 

13,868,816

 

Stockholders' equity

 

 

 

Common stock, $1.00 par value, 300,000,000 shares authorized; 135,526,576 and 135,343,417 shares issued; 79,398,713 and 82,710,911 shares outstanding

135,527

 

 

135,343

 

Additional paid-in capital

1,671,198

 

 

1,666,609

 

Accumulated other comprehensive (loss) income, net of taxes

12,137

 

 

8,294

 

Treasury stock, at cost; 56,127,863 and 52,632,506 shares

(1,106,244

)

 

(1,002,309

)

Retained earnings

1,300,116

 

 

1,188,971

 

 

2,012,734

 

 

1,996,908

 

 

$

16,468,525

 

 

$

15,865,724

 

CONSOLIDATED FINANCIAL HIGHLIGHTS

 

 

 

Common stockholders' equity per share

$

25.35

 

 

$

24.14

 

Tangible common stockholders' equity per share

21.45

 

 

20.38

 

Stockholders' equity to total assets

12.22

%

 

12.59

%

Tangible common stockholders' equity (TCE) to tangible assets (TA)

10.54

%

 

10.84

%

TCE + allowance for loan losses to TA

11.37

%

 

11.67

%

Weighted average rates at period end

 

 

 

Loans and mortgage-backed securities

4.32

%

 

4.19

%

Combined loans, mortgage-backed securities and investments

4.21

 

 

4.07

 

Customer accounts

1.13

 

 

0.87

 

Borrowings

2.58

 

 

2.66

 

Combined cost of customer accounts and borrowings

1.39

 

 

1.17

 

Net interest spread

2.82

2.90

 

Three Months Ended June 30,

 

Nine Months Ended June 30,

 

2019

 

2018

 

2019

 

2018

 

(In thousands, except share and ratio data)

 

(In thousands, except share and ratio data)

INTEREST INCOME

 

 

 

 

 

 

 

Loans receivable

$

145,490

 

 

$

131,541

 

 

$

423,616

 

 

$

382,581

 

Mortgage-backed securities

18,719

 

 

18,022

 

 

57,254

 

 

52,588

 

Investment securities and cash equivalents

7,617

 

 

5,509

 

 

21,160

 

 

14,762

 

 

171,826

 

 

155,072

 

 

502,030

 

 

449,931

 

INTEREST EXPENSE

 

 

 

 

 

 

 

Customer accounts

32,331

 

 

18,887

 

 

88,576

 

 

49,939

 

FHLB advances and other borrowings

17,829

 

 

16,333

 

 

52,566

 

 

47,104

 

 

50,160

 

 

35,220

 

 

141,142

 

 

97,043

 

Net interest income

121,666

 

 

119,852

 

 

360,888

 

 

352,888

 

Provision (release) for loan losses

 

 

1,000

 

 

250

 

 

50

 

Net interest income after provision (release)

121,666

 

 

118,852

 

 

360,638

 

 

352,838

 

 

 

 

 

 

 

 

 

OTHER INCOME

 

 

 

 

 

 

 

Gain (loss) on sale of investment securities

 

 

 

 

(9

)

 

 

FDIC loss share valuation adjustments

 

 

 

 

 

 

(8,550

)

Loan fee income

1,334

 

 

1,094

 

 

2,971

 

 

2,909

 

Deposit fee income

6,258

 

 

6,411

 

 

18,387

 

 

19,500

 

Other Income

6,450

 

 

4,946

 

 

24,512

 

 

17,974

 

 

14,042

 

 

12,451

 

 

45,861

 

 

31,833

 

OTHER EXPENSE

 

 

 

 

 

 

 

Compensation and benefits

34,297

 

 

31,223

 

 

100,954

 

 

92,467

 

Occupancy

9,684

 

 

9,095

 

 

28,782

 

 

26,779

 

FDIC insurance premiums

2,559

 

 

2,950

 

 

7,399

 

 

8,622

 

Product delivery

3,912

 

 

4,356

 

 

11,478

 

 

11,977

 

Information technology

9,935

 

 

10,118

 

 

27,730

 

 

26,828

 

Other

10,511

 

 

9,235

 

 

34,194

 

 

28,032

 

 

70,898

 

 

66,977

 

 

210,537

 

 

194,705

 

Gain (loss) on real estate owned, net

353

 

 

168

 

 

1,481

 

 

(64

)

Income before income taxes

65,163

 

 

64,494

 

 

197,443

 

 

189,902

 

Income tax provision

11,309

 

 

13,100

 

 

39,549

 

 

37,567

 

NET INCOME

$

53,854

 

 

$

51,394

 

 

$

157,894

 

 

$

152,335

 

 

 

 

 

 

 

 

 

PER SHARE DATA

 

 

 

 

 

 

 

Basic earnings per share

$

0.67

 

 

$

0.61

 

 

$

1.95

 

 

$

1.78

 

Diluted earnings per share

0.67

 

 

0.61

 

 

1.95

 

 

1.78

 

Cash dividends per share

0.20

 

 

0.17

 

 

0.58

 

 

0.49

 

Basic weighted average shares outstanding

79,976,574

 

84,168,992

 

80,915,162

 

85,589,588

Diluted weighted average shares outstanding

79,992,356

 

84,252,659

 

80,941,617

 

85,698,888

 

 

 

 

 

 

 

 

PERFORMANCE RATIOS

 

 

 

 

 

 

 

Return on average assets

1.31

%

 

1.31

%

 

1.29

%

 

1.31

%

Return on average common equity

10.68

 

 

10.30

 

 

10.51

 

 

10.12

 

Net interest margin

3.18

 

 

3.29

 

 

3.18

 

 

3.27

 

Efficiency ratio

52.24

 

 

50.62

 

 

51.76

 

 

49.51

 

 

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