1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission file number 0-25454
WASHINGTON FEDERAL, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Washington 91-1661606
-------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
425 Pike Street Seattle, Washington 98101
-----------------------------------------------------
(Address of principal executive offices and zip code)
(206) 624-7930
----------------------------------------------------
(Registrant's telephone number, including area code)
--------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ___
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act). Yes X No ___
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
TITLE OF CLASS: AT MAY 1, 2003
Common stock, $1.00 par value 69,581,868
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART I
Item 1. Financial Statements
The Consolidated Financial Statements of Washington Federal,Inc. and
Subsidiaries filed as a part of the report are as follows:
Consolidated Statements of Financial Condition
as of March 31, 2003 and September 30, 2002 ............................... Page 3
Consolidated Statements of Operations for the quarter
and six months ended March 31, 2003 and 2002 .............................. Page 4
Consolidated Statements of Cash Flows for the
six months ended March 31, 2003 and 2002 .................................. Page 5
Notes to Consolidated Financial Statements ................................ Page 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .......................................... Page 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk ...................... Page 13
Item 4. Controls and Procedures ......................................................... Page 14
PART II
Item 1. Legal Proceedings ............................................................ Page 15
Item 2. Changes in Securities and Use of Proceeds..................................... Page 15
Item 3. Defaults Upon Senior Securities .............................................. Page 15
Item 4. Submission of Matters to a Vote of Secuirty Holders .......................... Page 15
Item 5. Other Information ............................................................ Page 15
Item 6. Exhibits and Reports on Form 8-K ............................................. Page 15
Signatures ................................................................. Page 16
Certifications ............................................................. Page 17
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
March 31, 2003 September 30, 2002
-------------- ------------------
(In thousands, except per share data)
ASSETS
Cash and cash equivalents ......................................... $ 1,315,305 $ 975,153
Available-for-sale securities, including encumbered
securities of $584,543.......................................... 854,763 918,776
Held-to-maturity securities, including encumbered
securities of $152,678......................................... 166,707 168,925
Securitized assets subject to repurchase, net...................... 427,620 755,961
Loans receivable, net ............................................. 4,266,413 4,292,003
Interest receivable ............................................... 33,126 39,503
Premises and equipment, net ....................................... 58,668 55,119
Real estate held for sale ......................................... 15,797 17,587
FHLB stock ........................................................ 136,811 132,320
Costs in excess of net assets acquired ............................ 35,703 35,703
Other assets ...................................................... 755 1,391
----------- -----------
$ 7,311,668 $ 7,392,441
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Customer accounts
Savings and demand accounts ................................... $ 4,355,149 $ 4,452,250
Repurchase agreements with customers .......................... 77,199 69,672
----------- -----------
4,432,348 4,521,922
FHLB advances ..................................................... 1,650,000 1,650,000
Other borrowings................................................... 100,000 100,000
Advance payments by borrowers for taxes and insurance ............. 18,555 22,704
Federal and state income taxes .................................... 71,304 84,235
Accrued expenses and other liabilities ............................ 51,492 52,862
----------- -----------
6,323,699 6,431,723
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value, 100,000,000 shares authorized;
83,992,765 and 83,833,244 shares issued; and 69,580,218
and 69,894,902 shares outstanding ............................ 83,993 76,212
Paid-in capital ................................................... 1,050,682 968,858
Accumulated other comprehensive income, net of taxes .............. 45,000 56,000
Treasury stock, at cost; 14,412,547 and 13,938,342 shares ......... (207,799) (198,279)
Retained earnings ................................................. 16,093 57,927
----------- -----------
987,969 960,718
----------- -----------
$ 7,311,668 $ 7,392,441
=========== ===========
CONSOLIDATED FINANCIAL HIGHLIGHTS
Stockholders' equity per share .................................... $ 14.20 $ 13.75
Stockholders' equity to total assets .............................. 13.51% 13.00%
Weighted average rates at period end:
Loans and mortgage-backed securities* ........................... 6.94% 7.26%
Investment securities** ......................................... 2.28 2.82
Combined rate on loans, mortgage-backed securities
and investment securities ....................................... 5.84 6.53
Customer accounts ............................................... 2.42 2.94
Borrowings ...................................................... 5.03 5.03
Combined cost of customer accounts and borrowings ............... 3.16 3.52
Interest rate spread ............................................ 2.68 3.01
* Includes securitized assets subject to repurchase
** Includes municipal bonds at tax-equivalent yields and cash equivalents
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Quarter Ended March 31, Six Months Ended March 31,
------------------------- --------------------------
2003 2002 2003 2002
-------- -------- --------- ---------
(Dollars in thousands, except per share data)
INTEREST INCOME
Loans and securitized assets subject to repurchase ....... $ 90,207 $102,180 $186,323 $209,132
Mortgage-backed securities ................................. 16,190 18,862 34,405 39,266
Investment securities and cash equivalents.................. 8,487 6,030 16,782 10,586
-------- -------- -------- --------
114,884 127,072 237,510 258,984
INTEREST EXPENSE
Customer accounts .......................................... 27,615 38,035 58,909 82,522
FHLB advances and other borrowings ......................... 21,950 20,239 44,359 41,109
-------- -------- -------- --------
49,565 58,274 103,268 123,631
-------- -------- -------- --------
NET INTEREST INCOME ........................................ 65,319 68.798 134,242 135,353
Provision for loan losses .................................. 150 2,000 1,400 4,000
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES ........ 65,169 66,798 132,842 131,353
OTHER INCOME
Gains on sale of securities, net ........................... - - - 765
Gains on sale of real estate ............................... 3,382 - 3,382 -
OTHER ...................................................... 2,222 1,549 4,415 3,765
-------- -------- -------- --------
5,604 1,549 7,797 4,530
OTHER EXPENSE
Compensation and fringe benefits ........................... 7,742 8,665 15,972 17,253
Occupancy .................................................. 1,294 1,106 2,604 2,293
Other ...................................................... 3,390 3,353 6,060 6,482
-------- -------- -------- --------
12,426 13,124 24,636 26,028
Gain (loss) on real estate acquired through
foreclosure, net ...................................... (113) 5 (441) 25
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES ................................. 58,234 55,228 115,562 109,880
Income taxes ............................................... 20,530 19,469 40,740 38,736
-------- -------- -------- --------
NET INCOME ................................................. $ 37,704 $ 35,759 $ 74,822 $ 71,144
======== ======== ======== ========
PER SHARE DATA
Basic earnings ............................................. $ .54 $ .51 $ 1.08 $ 1.02
Diluted earnings ........................................... .54 .51 1.07 1.01
Cash dividends ............................................. .21 .20 .42 .40
Weighted average number of shares outstanding,
including dilutive stock options ......................... 70,091,224 70,564,418 70,087,717 70,449,933
Return on average assets ................................... 2.08% 2.05% 2.06% 2.05%
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended March 31,
----------------------------
2003 2002
--------- ---------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ............................................................. $ 74,822 $ 71,144
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of fees, discounts and premiums, net .................... (7,635) (3,347)
Depreciation ......................................................... 1,890 1,882
Provision for loan losses ............................................ 1,400 4,000
Loss (gain) on investment securities and real estate held for sale ... 441 (790)
Decrease in accrued interest receivable .............................. 6,377 5,479
Decrease in income taxes payable ..................................... (7,931) (12,683)
FHLB stock dividends ................................................. (4,491) (4,067)
Decrease in other assets ............................................. 636 35
Decrease in accrued expenses and other liabilities ................... (1,370) (4,302)
--------- ---------
Net cash provided by operating activities .............................. 64,139 57,351
CASH FLOWS FROM INVESTING ACTIVITIES
Loans and contracts originated
Loans on existing property ........................................... (466,625) (395,280)
Construction loans ................................................... (236,558) (151,956)
Land loans ........................................................... (76,765) (39,777)
Loans refinanced ..................................................... (59,383) (53,859)
--------- ---------
(839,331) (640,872)
Savings account loans originated ....................................... (889) (3,879)
Loan principal repayments .............................................. 1,298,144 967,240
Increase (decrease) in undisbursed loans in process .................... 18,470 (41,447)
Loans purchased ........................................................ (130,188) (55,919)
Available-for-sale securities purchased................................. (229,995) (55,498)
Principal payments and maturities of available-for-sale securities ..... 286,347 245,986
Available-for-sale securities sold...................................... - 10,000
Held-to-maturity securities purchased .................................. (50,000) -
Principal payments and maturities of held-to-maturity securities ....... 52,440 45,738
Proceeds from sales of real estate held for sale ....................... 6,748 8,971
Premises and equipment purchased, net .................................. (5,439) (3,468)
--------- ---------
Net cash provided by investing activities .............................. 406,307 476,852
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in customer accounts ........................... (89,574) 140,777
Net decrease in borrowings ............................................. - (117,500)
Proceeds from exercise of common stock options ......................... 1,767 1,829
Proceeds from employee stock ownership plan ............................ 772 294
Dividends paid ......................................................... (29,076) (27,971)
Treasury stock purchased, net .......................................... (10,034) (6,453)
Decrease in advance payments by borrowers for taxes and insurance ...... (4,149) (3,023)
--------- ---------
Net cash used by financing activities .................................. (130,294) (12,047)
INCREASE IN CASH AND CASH EQUIVALENTS................................... 340,152 522,156
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ....................... 975,153 30,331
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................. $1,315,305 $ 552,487
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
NON-CASH INVESTING ACTIVITIES
Real estate acquired through foreclosure ............................. $ 5,399 $ 12,210
CASH PAID DURING THE PERIOD FOR
Interest ............................................................. 104,586 128,901
Income taxes ......................................................... 49,235 51,825
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER AND SIX MONTHS ENDED MARCH 31, 2003 AND 2002
(Unaudited)
NOTE A - Basis of Presentation
The consolidated interim financial statements included in this report have
been prepared by Washington Federal, Inc. ("Company") without audit. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires management
to make estimates and assumptions that affect amounts reported in the financial
statements. Actual results could differ from these estimates. In the opinion
of management, all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation are reflected in the interim financial
statements. The September 30, 2002 Consolidated Statement of Financial
Condition was derived from audited financial statements.
The information included in this Form 10-Q should be read in conjunction
with Washington Federal, Inc.'s 2002 Annual Report on Form 10-K to the
Securities and Exchange Commission. Interim results are not necessarily
indicative of results for a full year.
NOTE B - Dividends
Dividends per share increased to 21 cents for the quarter ended March 31, 2003
compared with 20 cents for the same period one year ago. On April 18, 2003
the Company paid its 81st consecutive quarterly cash dividend.
On January 21, 2003, the Board of Directors of the Company declared an
eleven-for-ten stock split in the form of a 10% stock dividend to stockholders
of record on February 7, 2003, which was distributed on February 21, 2003.
All previously reported per share amounts have been adjusted accordingly.
NOTE C - Comprehensive Income
The Company's comprehensive income includes all items which comprise net
income plus the unrealized holding gains (losses) on available-for-sale
securities and forward commitments to purchase or sell mortgage-backed
securities. Total comprehensive income for the quarters ended March 31,
2003 and March 31, 2002 totaled $30,704,000 and $31,759,000, respectively.
Total comprehensive income for the six months ended March 31, 2003 and March
31, 2002 totaled $63,822,000 and $57,565,000, respectively. The difference
between the Company's net income and total comprehensive income equals the
change in the net unrealized gain or loss, net of tax, on securities
available-for-sale and forward commitments to purchase or sell mortgage-backed
securities during the applicable periods.
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Note D - Allowance for Losses on Loans and Securitized Assets Subject
to Repurchase
The following table summarizes the activity in the allowance for loan losses
(including securitized assets subject to repurchase) for the three and six
months ended March 31, 2003 and 2002:
Quarter Ended March 31, Six Months Ended March 31,
2003 2002 2003 2002
---------- ---------- ---------- ----------
(in thousands) (in thousands)
Balance at beginning of period...... $ 24,550 $ 20,752 $ 23,912 $ 19,683
Provision for loan losses........... 150 2,000 1,400 4,000
Charge-offs......................... (85) (357) (697) (1,576)
Recoveries.......................... - 79 - 367
--------- ---------- --------- ----------
Balance at end of period............ $ 24,615 $ 22,474 $ 24,615 $ 22,474
========= ========== ========= ==========
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Note E - New Accounting Pronouncements
In December 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard ("SFAS") No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure". SFAS No. 148 amends
SFAS No. 123, "Accounting for Stock-Based Compensation" to provide alternative
methods of transistion for a voluntary change to the fair value based method
of accounting for stock-based employee compensation. In addition, SFAS No. 148
requires prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The Company accounts for stock
options using the intrinsic value method as prescribed in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees". The
following table summarizes the pro forma amounts of net income and earnings per
share that would have been reported had the Company elected to follow the fair
value recognition provisions of SFAS No. 123:
Quarter Ended March 31, Six Months Ended March 31,
2003 2002 2003 2002
---------- ---------- ---------- ----------
(in thousands, except per share data)
Net income, as reported ............ $ 37,704 $ 35,759 $ 74,822 $ 71,144
Add: Total stock option employee
compensation expense included in
reported net income, net of related
tax effects ....................... - - - -
Deduct: Total stock option employee
compensation expense determined
under fair value based method for
all awards, net of related tax
effects .......................... (278) (287) (556) (575)
--------- ---------- --------- ----------
Pro forma net income ............... $ 37,426 $ 35,472 $ 74,266 $ 70,569
========= ========== ========= ==========
Earnings per share .................
Basic - as reported .......... $ 0.54 $ 0.51 $ 1.08 $ 1.02
Basic - pro forma ............ 0.54 0.51 1.07 1.01
Diluted - as reported ........ 0.54 0.51 1.07 1.01
Diluted - pro forma .......... 0.53 0.50 1.06 1.00
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Washington Federal, Inc. ("Company") is a savings and loan holding company.
The Company's primary operating subsidiary is Washington Federal Savings.
INTEREST RATE RISK
The Company assumes a high level of interest rate risk as a result of
its policy to originate fixed-rate single family home loans, which are
longer-term in nature than the short-term characteristics of its
liabilities of customer accounts and borrowed money. At March 31, 2003,
the Company had a negative one-year maturity gap of approximately 16%
of total assets, compared to a 26% negative one-year maturity gap as of
March 31, 2002. The decrease in interest rate risk is the result of the
Company building its short-term assets.
The interest rate spread decreased to 2.68% at March 31, 2003 from
3.01% at September 30, 2002. The decrease was primarily due to the continued
build up of cash and cash equivalents (totaling $1.3 billion) invested at
overnight rates (1.25%). During this phase of the interest rate cycle
(historically low rates for 30 year fixed-rate loans) the Company chose to
position its balance sheet for increasing rates in the future by building cash
and reducing the amount of loans and mortgage-backed investments. As of
March 31, 2003, the Company had accumulated $1,315,305,000 in cash and cash
equivalents, an increase of $340,152,000 from September 30,2002. This
liquidity, which represents 18% of total assets, provides management with
flexibility in managing interest rate risk going forward.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net worth at March 31, 2003 was $987,969,000, or 13.51% of
total assets. This was an increase of $27,251,000 from September 30, 2002
when net worth was $960,718,000, or 13.00% of total assets. The
increase in the Company's net worth included $74,822,000 from net
income. Net worth was reduced by $29,076,000 of cash dividends paid and
an $11,000,000 decrease in accumulated other comprehensive income. During
the six months ended March 31, 2003, 510,070 shares were repurchased under
the Company's ongoing common stock repurchase program at an average
price of $19.67, which left a total of 2.81 million shares currently
authorized by the Board of Directors as available for repurchase.
The Company's percentage of net worth to total assets is among the
highest in the nation and is over three times the minimum required under
Office of Thrift Supervision regulations. Management believes this strong
net worth position will help protect earnings against interest rate risk
and enable it to compete more effectively for controlled growth through
acquisitions, de novo expansion and increased customer deposits.
The Company's cash and investment securities amounted to $1,578,822,000,
a $486,252,000 increase from September 30, 2002. This increase is the
result of higher than normal repayment levels on loans and mortgage-
backed securities during the first six months of fiscal 2003, stemming
from record low mortgage rates.
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management has elected to keep these funds invested short term to take
advantage of expected rising interest rates in the future (see Interest
Rate Risk above).
CHANGES IN FINANCIAL CONDITION
Available-for-sale and held-to-maturity securities: Available-for-sale
securities decreased $64,013,000 or 7.0% during the six months ended
March 31, 2003, due to unusually high prepayments, resulting from
reduced interest rates on mortgage loans and the underlying collateral
for mortgage-backed securities. The Company purchased $229,995,000 and
$50,000,000 of available-for-sale and held-to-maturity investment
securities, respectively, during the six months ended March 31, 2003.
As of March 31, 2003, the Company had unrealized gains on available-for-sale
securities of $45,000,000, net of tax, which were recorded as part of
stockholders' equity.
Loans receivable and securitized assets subject to repurchase: During the
six months ended March 31, 2003, the combined total of loans receivable and
securitized assets subject to repurchase decreased 7.0% to $4,694,033,000
compared to $5,047,964,000 at September 30,2002. The decrease resulted from
Management's unwillingness to aggressively compete during this period of
increased refinancing activity caused by historically low home mortgage rates.
Non-performing assets: Non-performing assets decreased 17.1% during the six
months ended March 31, 2003 to $28,080,000 from $33,876,000 at September 30,
2002.
Costs in excess of net assets acquired: Costs in excess of fair value of net
assets acquired in business combinations are reviewed at least annually to
determine that no impairment of the assets has occured; there was no
impairment at March 31, 2003. The Company will continue to evaluate these
assets and, if appropriate, provide for any diminution in value.
Customer accounts: Customer accounts decreased $89,574,000, or 2.0%, to
$4,432,348,000 at March 31, 2003 compared with $4,521,922,000 at September
30, 2002, as a result of the low interest rate environment for deposits.
FHLB advances and other borrowings: Total borrowings remained unchanged at
$1,750,000,000 during the six months ending March 31, 2003.
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Income: The quarter ended March 31, 2003 produced net income of
$37,704,000 compared $35,759,000 for the same quarter one year ago,
a 5.4% increase. Net income for the six months ended March 31, 2003
was $74,822,000 compared to $71,144,000 for the six months ended
March 31, 2002, a 5.2% increase. Net income for the three and
six months ended March 31, 2003 increased primarily as a result of
reduced operating expenses and increased other income.
Net Interest Income: The largest component of the Company's
earnings is net interest income, which is the difference between
the interest and dividends earned on loans and other investments
and the interest paid on customer deposits and borrowings. Net
interest income is impacted primarily by two factors; first, the
volume of earning assets and liabilities and second, the rate
earned on those assets or the rate paid on those liabilities.
The following table sets forth certain information explaining
changes in interest income and interest expense for the periods
indicated. For each category of interest-earning asset and
interest-bearing liability, information is provided on
changes attributable to (1) changes in volume (changes in volume
multiplied by old rate) and (2) changes in rate (changes in rate
multiplied by old volume). The change in interest income and
interest expense attributable to change in both volume and rate
has been allocated proportionately to the change due to volume
and the change due to rate.
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12
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Rate / Volume Analysis:
Quarter Ended Six Months Ended
March 31,2003 March 31, 2003
Volume Rate Total Volume Rate Total
------- ------- ------- ------- ------- --------
Interest Income:
Loan Portfolio $(9,029) $(2,944) $ (11,973) $(17,608) $(5,201) $ (22,809)
Mortgaged-backed securities (5,169) 2,497 (2,672) (10,622) 5,761 (4,861)
Investments securities
and cash equivalents (1) 5,981 (3,524) 2,457 13,666 (7,470) 6,196
------- ------- ------- ------- ------- --------
All interest-earning assets (8,217) (3,971) (12,188) (14,564) (6,910) (21,474)
Interest Expense:
Customer Accounts 2,554 (843) 1,711 4,717 (1,467) 3,250
FHLB advances and other
borrowings (11,508) (2,776) (14,284) (23,160) (8,767) (31,927)
------- ------- ------- ------- ------- -------
All interest-bearing libilities 2,441 (11,150) (8,709) 6,059 (26,422) (20,363)
Change in net interest income $(10,658) $ 7,179 $ (3,479) $(20,623) $19,512 $(1,111)
======= ======== ======== ======= ======= =======
(1) Includes dividents on FHLB stock
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Interest income for the six month period and quarter ended March 31, 2003
benefited from additional accretion of discounts on mortgage-back securities
and deferred loan fees of approximately $11,000,000 and $5,000,000,
respectively, caused from the record prepayment activity experienced during
the periods. If prepayments return to historic levels, this additional
accretion will subside.
The Company provided $150,000 for loan losses during the quarter,
compared to $2,000,000 for the same quarter last year. For the six
months ended March 31, 2003, the total provision was $1,400,000,
compared to $4,000,000 for the same period one year ago. This decrease
was due to the continued decline in the amount of the loan portfolio,
combined with strong asset quality indicators. Non-performing assets
amounted to $28,080,000 or .38% of total assets at March 31, 2003 compared
to $36,974,000 or .53% of total assets one year ago. Delinquencies on
permanent loans have decreased from $28,600,000 at March 31, 2002 to
$24,400,000 at March 31, 2003. These factors, with others, resulted
in a decrease in net charge-offs for the quarter ended March 31, 2003
by $193,000 over the comparable period in fiscal 2002. Weak economic
conditions, including high unemployment, continue in the Company's primary
markets.
Other Income: The quarter ended March 31, 2003 produced total other income
of $5,604,000 compared to $1,549,000 for the same quarter one year ago, a
261.8% increase. Total other income for the six months ended March 31, 2003
was $7,797,000 compared to $4,530,000 for the six months ended March 31, 2002,
a 72.1% increase. Total other income for the quarter and six months ended
March 31, 2003 increased primarily as a result of the $3,382,000 gain on sale
of real estate. There were no sales of securities during the first six months
of the current fiscal year.
Other Expenses: The quarter ended March 31, 2003 produced total other expenses
of $12,426,000 compared to $13,124,000 for the same quarter one year ago, a
5.3% decrease. Total other expenses for the six months ended March 31, 2003
was $24,636,000 compared to $26,028,000 for the six months ended March 31, 2002,
a 5.3% decrease. Total other expenses for the quarter and six months ended
March 31, 2003 equaled .68% of average assets, compared to .75% for the same
periods one year ago. The number of staff, including part-time employees on
a full-time equivalent basis, was 724 at both March 31, 2003 and March 31, 2002,
however, compensation expense decreased $1,281,000 primarily due to the decline
in bonus compensation.
Taxes: Income taxes increased $1,061,000 or 5.5% and $2,004,000 or 5.2% for the
quarter and six month periods ended March 31, 2003, respectively, when compared
to the same periods one year ago, due to a higher taxable income base. The
effective tax rate was 35.25% for the six month period ended March 31, 2003
and the same period one year ago.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Management believes that there has been no material changes in the Company's
quantitative and qualitative information about market risk since September 30,
2002. For a complete discussion of the Company's quantitative and qualitative
market risk, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in the Company's Annual Report on Form 10-K for the
year ended September 30, 2002.
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14
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 4. Controls and Procedures
Within the 90 days prio to the date of this report, the Company carried out
an evaluation, under the supervision and with the participation of the
Company's management, including the Company's President and Chief Executive
Officer along with the Company's Vice President Finance and principal
financial officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures pursuant to the Securities
Exchange Act of 1934 ("Exchange Act") Rule 13a-14. Based upon that
evaluation, the Company's President and Chief Executive Officer along with
the Company's Vice President Finance and principal financial officer
concluded that the Company's disclosure controls and procedures are
effective in timely alerting them to material information relating to the
Company (including its consolidated subsidiaries) required to be included
in the Company's periodic Securities and Exchange Commission ("SEC")
filings. There have been no significant changes in the Company's internal
controls or in other factors which could significantly affect these
controls subsequent to the date the Company carried out its evaluation.
Disclosure controls and procedures are Company controls and other procedures
that are designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized, and reported within the time periods
specified in the SEC's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by the Company in the reports that it
files under the Exchange Act is accumulated and communicated to the Company's
management, including its President and Chief Executive Officer and Vice
President Finance and principal financial officer, as appropriate, to allow
timely decisions and regarding required disclosure.
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15
Part II - Other Information
Item 1. Legal Proceedings
From time to time the Company or its subsidiaries are engaged in legal
proceedings in the ordinary course of business, none of which are
considered to have a material impact on the Company's financial
position or results of operations.
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of Washington Federal Savings, Inc.
was held on January 21, 2003. Three nominees for reelection as Directors,
John F. Clearman, H. Dennis Halvorson and Roy M. Whitehead, were
reelected for three-year terms. The votes cast for John F. Clearman
were 63,245,623 shares. The votes cast for H. Dennis Halvorson were
63,348,463 shares. The votes cast for Roy M. Whitehead were 62,940,923
shares.
The stockholders ratified the appointment of Deloitte & Touche LLP as the
Company's independent public accountants for fiscal year 2003 with
63,347,403 shares cast for the proposal.
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99.1 Section 906 Certification by the Chief Executive Officer and
the principal financial and accounting officer.
(b) Report on Form 8-K
1. Report filed February 14, 2003. Item included: Item 9.
Regulation FD Disclosure. The report included written
statements by Roy M. Whitehead, Vice Chairman, President
and Chief Executive Officer and Brent J. Beardall, Vice President
Finance and principal financial officer of Washington Federal,
Inc., pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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16
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
/s/ Roy M. Whitehead
May 12, 2003 --------------------------------------
ROY M. WHITEHEAD
Vice Chairman, President and Chief
Executive Officer
/s/ Brent J. Beardall
May 12, 2003 --------------------------------------
BRENT J. BEARDALL
Vice President Finance and
Controller (principal financial and
accounting officer)
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17
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CERTIFICATIONS
I, Roy M. Whitehead, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Washington
Federal, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statements of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented
in this quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and we have:
(a) Designed such disclosure controls and procedures to ensure
that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) Evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the "Evaluation
Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the Registrant's auditors
and to the audit committee of the Registrant's board of directors
(or persons performing the equivalent function):
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the
Registrant's ability to record, process, summarize and report
financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls;
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Registrant's internal controls; and
6. The Registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ Roy M. Whitehead
Date: May 12, 2003 -----------------------------------
ROY M. WHITEHEAD
Vice Chairman, President and Chief
Executive Officer
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18
I, Brent J. Beardall, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Washington
Federal, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statements of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented
in this quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and we have:
(a) Designed such disclosure controls and procedures to ensure
that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) Evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the "Evaluation
Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the Registrant's auditors
and to the audit committee of the Registrant's board of directors
(or persons performing the equivalent function):
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the
Registrant's ability to record, process, summarize and report
financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls;
(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Registrant's internal controls; and
6. The Registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ Brent J. Beardall
Date: May 12, 2003 -----------------------------------
BRENT J. BEARDALL
Vice President Finance and
Controller (principal financial
and accounting officer)
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