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, 2004
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, 2004
Common stock, $1.00 par value 78,455,500
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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, 2004 and September 30, 2003 ............................... Page 3
Consolidated Statements of Operations for the quarter
and six months ended March 31, 2004 and 2003 .............................. Page 4
Consolidated Statements of Cash Flows for the
six months ended March 31, 2004 and 2003 .................................. 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 17
Item 4. Controls and Procedures ......................................................... Page 17
PART II
Item 1. Legal Proceedings ............................................................ Page 18
Item 2. Changes in Securities and Use of Proceeds and Issuer Purchases of Equity
Securities ................................................................... Page 18
Item 3. Defaults Upon Senior Securities .............................................. Page 18
Item 4. Submission of Matters to a Vote of Secuirty Holders .......................... Page 18
Item 5. Other Information ............................................................ Page 18
Item 6. Exhibits and Reports on Form 8-K ............................................. Page 18
Signatures ................................................................... Page 20
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
March 31, 2004 September 30, 2003
-------------- ------------------
(In thousands, except per share data)
ASSETS
Cash and cash equivalents ......................................... $ 1,182,891 $ 1,437,208
Available-for-sale securities, including encumbered
securities of $56,466 and $76,921, at fair value................ 940,840 781,798
Held-to-maturity securities, including encumbered
securities of $64,742 and $75,690, at amortized cost........... 176,317 154,178
Securitized assets subject to repurchase, net...................... 150,654 210,782
Loans receivable, net ............................................. 4,758,358 4,606,726
Interest receivable ............................................... 30,077 29,489
Premises and equipment, net ....................................... 61,288 60,942
Real estate held for sale ......................................... 13,317 16,204
FHLB stock ........................................................ 147,114 143,851
Intangible assets ................................................. 59,613 60,336
Other assets ...................................................... 22,623 34,461
----------- -----------
$ 7,543,092 $ 7,535,975
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Customer accounts
Savings and demand accounts ................................... $ 4,509,026 $ 4,520,051
Repurchase agreements with customers .......................... 51,720 57,547
----------- -----------
4,560,746 4,577,598
FHLB advances ..................................................... 1,650,000 1,650,000
Other borrowings................................................... 100,000 100,000
Advance payments by borrowers for taxes and insurance ............. 19,514 23,281
Federal and state income taxes .................................... 61,893 70,011
Accrued expenses and other liabilities ............................ 58,599 59,489
----------- -----------
6,450,752 6,480,379
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value, 100,000,000 shares authorized;
94,286,097 and 94,109,168 shares issued; and 78,498,545
and 78,290,836 shares outstanding ............................ 94,286 85,554
Paid-in capital ................................................... 1,158,647 1,085,650
Accumulated other comprehensive income, net of taxes .............. 34,646 34,624
Treasury stock, at cost; 15,787,552 and 15,818,332 shares ......... (206,935) (207,337)
Retained earnings ................................................. 11,696 57,105
----------- -----------
1,092,340 1,055,596
----------- -----------
$ 7,543,092 $ 7,535,975
=========== ===========
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,
------------------------- --------------------------
2004 2003 2004 2003
-------- -------- --------- ---------
(In thousands, except per share data)
INTEREST INCOME
Loans and securitized assets subject to repurchase ....... $ 82,388 $ 89,648 $164,783 $185,205
Mortgage-backed securities ................................. 12,379 16,190 24,113 34,405
Investment securities and cash equivalents.................. 7,915 8,488 16,468 16,783
-------- -------- -------- --------
102,682 114,326 205,364 236,393
INTEREST EXPENSE
Customer accounts .......................................... 21,234 27,615 42,871 58,910
FHLB advances and other borrowings ......................... 22,172 21,950 44,591 44,358
-------- -------- -------- --------
43,406 49,565 87,462 103,268
-------- -------- -------- --------
NET INTEREST INCOME ........................................ 59,276 64,761 117,902 133,125
Provision for loan losses .................................. - 150 - 1,400
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES ........ 59,276 64,611 117,902 131,725
OTHER INCOME
Gain (loss) on sale of securities, net ..................... (659) - (122) -
Gains on sale of real estate ............................... - 3,382 - 3,382
OTHER ...................................................... 2,602 2,222 4,788 4,415
-------- -------- -------- --------
1,943 5,604 4,666 7,797
OTHER EXPENSE
Compensation and fringe benefits ........................... 7,789 7,742 15,349 15,972
Occupancy .................................................. 1,490 1,294 2,913 2,603
Other ...................................................... 1,824 2,832 3,620 4,945
-------- -------- -------- --------
11,103 11,868 21,882 23,520
Gain (loss) on real estate acquired through
foreclosure, net ...................................... 127 (113) 252 (440)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES ................................. 50,243 58,234 100,938 115,562
Income taxes ............................................... 17,723 20,530 35,596 40,740
-------- -------- -------- --------
NET INCOME ................................................. $ 32,520 $ 37,704 $ 65,342 $ 74,822
======== ======== ======== ========
PER SHARE DATA
Basic earnings ............................................. $ 0.41 $ 0.49 $ 0.83 $ 0.98
Diluted earnings ........................................... .41 .49 .82 .97
Cash dividends ............................................. .20 .19 .40 .38
Weighted average number of shares outstanding,
including dilutive stock options ......................... 79,301,242 77,100,346 79,211,105 77,096,488
Return on average assets ................................... 1.73% 2.06% 1.73% 2.03%
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 2004 March 2003
---------- ----------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ............................................................. $ 64,342 $ 74,822
Adjustments to reconcile net income to net cash provided by
operating activities
Amortization of fees, discounts and premiums, net .................... (4,342) (7,635)
Amortization of intangible assets .................................... 723 -
Depreciation ......................................................... 1,260 1,890
Provision for loan losses ............................................ - 1,400
Loss (gain) on investment securities and real estate held for sale,net (129) 441
Decrease (increase) in accrued interest receivable ................... (588) 6,377
Decrease in income taxes payable ..................................... (8,129) (7,931)
FHLB stock dividends ................................................. (3,263) (4,491)
Decrease (increase) in other assets .................................. (458) 636
Decrease in accrued expenses and other liabilities ................... (890) (1,370)
--------- ---------
Net cash provided by operating activities .............................. 49,526 64,139
CASH FLOWS FROM INVESTING ACTIVITIES
Loans and contracts originated
Loans on existing property ........................................... (506,907) (466,625)
Construction loans ................................................... (242,648) (236,558)
Land loans ........................................................... (120,402) (76,765)
Loans refinanced ..................................................... (42,867) (59,383)
--------- ---------
(912,824) (839,331)
Savings account loans originated ....................................... (531) (889)
Loan principal repayments .............................................. 795,207 1,298,144
Increase in undisbursed loans in process ............................... 24,686 18,470
Loans purchased ........................................................ (1,356) (130,188)
Available-for-sale securities purchased................................. (493,992) (229,995)
Principal payments and maturities of available-for-sale securities ..... 123,010 286,347
Available-for-sale securities sold...................................... 228,171 -
Held-to-maturity securities purchased .................................. (56,900) (50,000)
Principal payments and maturities of held-to-maturity securities ....... 34,995 52,440
Proceeds from sales of real estate held for sale ....................... 6,536 6,748
Premises and equipment purchased, net .................................. (1,606) (5,439)
--------- ---------
Net cash provided (used) by investing activities ....................... (254,604) 406,307
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in customer accounts ...................................... (16,852) (89,574)
Proceeds from exercise of common stock options ......................... 2,180 1,767
Dividends paid ......................................................... (31,547) (29,076)
Proceeds from Employee Stock Ownership Plan ............................ 747 772
Treasury stock purchased, net .......................................... - (10,034)
Decrease in advance payments by borrowers for taxes and insurance ...... (3,767) (4,149)
--------- ---------
Net cash used by financing activities .................................. (49,239) (130,294)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................ (254,317) 340,152
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ....................... 1,437,208 975,153
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................. $1,182,891 $1,315,305
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
NON-CASH INVESTING ACTIVITIES
Real estate acquired through foreclosure ............................. $ 3,397 $ 5,399
CASH PAID DURING THE PERIOD FOR
Interest ............................................................. 88,569 104,586
Income taxes ......................................................... 43,780 49,235
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, 2004 AND 2003
(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, 2003 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 2003 Annual Report on Form 10-K
("2003 Form 10-K") to the Securities and Exchange Commission ("SEC").
Interim results are not necessarily indicative of results for a full year.
The Company accounts for stock-based compensation plans based on the "intrinsic
value method" provided in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations.
Because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized on options granted. Compensation expense for restricted
stock awards is based on the market price of the stock on the date of grant
and is recognized ratably over the vesting period of the award. The fair
value of options granted under the Company's stock option plans is estimated
on the date of grant using the Black-Scholes option-pricing model. See
Note A and Note N in the 2003 Form 10-K where the Company's three stock-options
employee compensation plans, as well as the weighted-average assumptions
utilized in the Black-Scholes model, are more fully described.
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting For
Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-
Based Compensation - Transition and Disclosure," requires disclosures of net
income and earnings per share for companies not adopting its fair value
accouting method for stock-based employee compensation.
The following table illustrates the effect on net income and earnings per
share if the Company had applied the fair value recognition provisions of
SFAS No. 123:
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER AND SIX MONTHS ENDED MARCH 31, 2004 AND 2003
(Unaudited)
Quarter Ended March 31, Six Months Ended March 31,
2004 2003 2004 2003
---------- ---------- ---------- ----------
(in thousands except per share data)
Net income, as reported ............ $ 32,520 $ 37,704 $ 65,342 $ 74,822
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax
effects ........................... (448) (278) (895) (555)
--------- ---------- --------- ----------
Balance at end of period............ $ 32,072 $ 37,426 $ 64,447 $ 74,267
========= ========== ========= ==========
Earnings per share:
Basic - as reported $ 0.41 $ 0.49 $ 0.83 $ 0.98
Basic - pro forma 0.41 0.49 0.82 0.97
Diluted - as reported 0.41 0.49 0.82 0.97
Diluted - pro forma 0.40 0.49 0.81 0.96
Certain reclassifications have been made to the financial statements to conform
prior periods to current classifcations.
NOTE B - Dividends
Dividends per share increased to 20 cents for the quarter ended March 31, 2004
compared with 19 cents for the same period one year ago. On April 16, 2004
the Company paid its 85th consecutive quarterly cash dividend.
On January 21, 2004, 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 6, 2004, which was distributed on February 20, 2004.
All previously reported share and 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 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,
2004 and March 31, 2003 totaled $36,445,000 and $30,704,000, respectively.
Total comprehensive income for the six months ended March 31, 2004 and March
31, 2003 totaled $65,364,000 and $63,822,000, 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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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER AND SIX MONTHS ENDED MARCH 31, 2004 AND 2003
(Unaudited)
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 quarter and six
months ended March 31, 2004 and 2003:
Quarter Six Months
Ended March 31, Ended March 31,
2004 2003 2004 2003
---------- ---------- ---------- ----------
(in thousands) (in thousands)
Balance at beginning of period...... $ 25,631 $ 24,550 $ 25,806 $ 23,912
Provision for loan losses........... - 150 - 1,400
Charge-offs......................... (181) (85) (387) (697)
Recoveries.......................... 12 - 43 -
--------- ---------- --------- ----------
Balance at end of period............ $ 25,462 $ 24,615 $ 25,462 $ 24,615
========= ========== ========= ==========
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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, 2004,
the Company had a negative one-year maturity gap of approximately 17%
of total assets, compared to a 16% negative one-year maturity gap as of
March 31, 2003. The slight increase in interest rate risk is the result
of the Company investing a portion of its short-term assets into longer
term assets.
The interest rate spread decreased to 2.55% at March 31, 2004 from
2.47% at September 30, 2003 primarily due to an increased yield on
investments coupled with a decrease in deposit rates. During this phase
of the interest rate cycle (historically low rates for 30 year fixed-rate
loans) the Company has continued to position its balance sheet for
changing rates in the future by maintaining a high level of cash and
building stockhoders' equity. As of March 31, 2004, the Company had
accumulated $1,182,891,000 in cash and cash equivalents, a decrease of
$254,317,000 from September 30,2003. This decrease in cash and cash
equivalents resulted from investment purchases and loan growth. This
liquidity, which represents 16% 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, 2004 was $1,092,340,000, or 14.48% of
total assets. This was an increase of $36,744,000 from September 30, 2003
when net worth was $1,055,596,000, or 14.01% of total assets. The
increase in the Company's net worth included $65,342,000 from net income.
Net worth was reduced by $31,547,000 of cash dividend payments.
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.
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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
CHANGES IN FINANCIAL CONDITION
Available-for-sale and held-to-maturity securities: Available-for-sale
securities increased $159,042,000 or 20.3% during the six months ended
March 31, 2004. The Company purchased $493,992,000 and $56,900,000 of
available-for-sale and held-to-maturity investment securities, respectively,
during the six months ended March 31, 2004. In addition, during the six
months ended March 31, 2004, the Company sold $228,171,000 of
available-for-sale securities at a net loss of $122,000. As of March 31,
2004, the Company had unrealized gains on available-for-sale securities
of $28,111,000, 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, 2004, the combined total of loans receivable and
securitized assets subject to repurchase increased 1.9% to $4,909,012,000
compared to $4,817,508,000 at September 30,2003. The slight increase was
consistent with Management's strategy to minimize loan growth during this
period of historically low home mortgage rates. Permanent single-family
residential loans as a percentage of total loans decreased 72.6% at March
31, 2004 compared to 73.2% at September 30, 2003. The aggregate of
construction and land loans (gross of loans in progress) as a percentage
of total loans increased to 18.1% at March 31, 2004 compared to 17.6% at
September 30, 2003.
Non-performing assets: Loans are placed on nonaccrual status when, in the
judgement of management, the probability of collection of interest is
deemed to be insufficient to warrant further accrual. When a loan is placed
on nonaccrual status, previously accrued but unpaid interest is deducted
from interest income. The Company does not accrue interest on loans 90 days
past due or more. Real estate acquired by foreclosure or deed-in-lieu
thereof ("REO") is classified as real estate held for sale until it is sold.
When property is acquired, it is recorded at the lower of carrying or fair
value at the date of acquisition, and any writedown resulting therefrom is
charged to the allowance for loan losses. Interest accrual ceases on the
date of acquisition and costs incurred in maintaining the property from that
date forward are expensed as incurred. Costs incurred for the improvement or
developement of such property are capitalized. Non-performing assets decreased
8.1% during the six months ended March 31, 2004 to $25,216,000 from
$27,434,000 at September 30, 2003.
The following table sets forth information regarding restructured and
nonaccrual loans and REO held by the Company at the dates indicated.
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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
March 31, September 30,
2004 2003
---------- ----------
(Dollars in thousands)
Restructed loans (1) ............... $ 1,465 $ 2,551
Nonaccrual loans:
Single-family residential ....... 16,210 12,711
Construction and land ........... 439 3,227
Commercial real estate .......... - -
Consumer ........................ - -
---------- ----------
Total nonaccrual loans (2) ... 16,649 15,938
Total REO (3) ...................... 8,567 11,496
---------- ----------
Total non-performing assets ........ $ 25,216 $ 27,434
========== ==========
Total non-performing assets and
restructured loans ................ $ 26,681 $ 29,985
========== ==========
Total non-performing assets and
restructured loans as a percentage
of total assets ................... 0.35% 0.40%
========== ==========
(1) Performing in accordance with restructured terms.
(2) The Company recognized interest income on nonaccrual loans
of approximately $242,000 in the quarter ended March 31,
2004. Had these loans performed according to their
original contract terms, the Company would have
recognized interest income of approximately $916,000
for the quarter ended March 31, 2004.
In addition to the nonaccrual loans reflected in the above
table, at March 31, 2004, the Company had $1.2 million of
loans that were less than 90 days delinquent but which it
had classified as substandard for one or more reasons. If
these loans were deemed nonperforming, the Company's ratio
of total nonperforming assets and restructured loans as a
percent of total assets would have been .37% at
March 31, 2004.
(3) Total REO (included in real estate held for sale on the
Balance Sheet) includes real estate held for sale acquired
in settlement of loans or acquired from purchased
institutions in settlement of loans.
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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
Allocation of the allowance for loan losses: The following table
shows the allocation of the Company's allowance for loan losses at
the dates indicated.
March 31, 2004 September 30, 2003
------------------------ ------------------------
Loans to Loans to
Amount Total Loans (1) Amount Total Loans (1)
---------- ----------- ---------- -----------
(in thousands)
Real estate:
Permanent ................. $ 9,267 80.5% $ 9,940 74.3%
Multi-family .............. 6,356 7.5 5,795 9.2
Land ...................... 2,975 0.8 2,929 4.2
Construction .............. 6,864 11.2 7,142 12.3
---------- ---------- ---------- ----------
$ 25,462 100.0% $ 25,806 100.0%
========== ========== ========== ==========
(1) The percentage is based on gross loans (including securitized assets
subject to repurchase) before allowance for loan losses, loans in
process and deferred loan origination costs.
Intangible assets: Goodwill represents the excess of the cost of
businesses acquired over the fair value of the net assest acquired. The
core deposit intangible and non-compete agreement intangible are
acquired assets that lack physical substance but can be distinguished
from goodwill. Goodwill is no longer amortized, but rather is
evaluated for impairment on an annual basis. Other intangible assets
are amortized over their estimated useful lives and are subject to
impairment testing when events or circumstances change. If
circumstances indicate that the carrying value of the assets may not
be recoverable, an impairment charge could be recorded. There was
no impairment at March 31, 2004. The Company will continue to
evaluate these assets and, if appropriate, provide for any
diminution in value.
Customer accounts: Customer accounts decreased $16,852,000, or 0.37%,
to $4,560,746,000 at March 31, 2004 compared with $4,577,598,000 at
September 30, 2003.
FHLB advances and other borrowings: Total borrowings remained unchanged
at $1,750,000,000 during the six months ended March 31, 2004.
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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, 2004 produced net income of
$32,520,000 compared $37,704,000 for the same quarter one year ago,
a 13.7% decrease. Net income for the six months ended March 31, 2004
was $65,342,000 compared to $74,822,000 for the six months ended
March 31, 2003, a 12.7% decrease. Net income decreased primarily as
a result of margin compression caused by lower yielding loans
combined with slower loan prepayments (which reduces the amount of
net deferred loan fees accreted into 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 compared to the same period one year ago. 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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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:
Comparison of Quarters Ended Comparison of Six Months Ended
3/31/04 and 3/31/03 3/31/04 and 3/31/03
Volume Rate Total Volume Rate Total
------- ------- ------- ------- ------- --------
(In thousands)
Interest Income:
Loan Portfolio ................. $ 2,343 $(9,603) $ (7,260) $ 321 $(20,743) $ (20,422)
Mortgaged-backed securities .... (998) (2,813) (3,811) (5,547) (4,745) (10,292)
Investments (1) ................ 560 (1,133) (573) 2,817 (3,132) (315)
------ ------ ------ ------ ------ ------
All interest-earning assets .... 1,905 (13,549) (11,644) (2,409) (28,620) (31,029)
------ ------ ------ ------ ------ ------
Interest Expense:
Customer Accounts .............. 680 (7,061) (6,381) 970 (17,009) (16,039)
FHLB advances and other
borrowings ..................... - 222 222 28 205 233
------ ------ ------ ------ ------ ------
All interest-bearing libilities .. 680 (6,839) (6,159) 998 (16,804) (15,806)
------ ------ ------ ------ ------ ------
Change in net interest income .... $ 1,225 $ (6,710) $ (5,485) $(3,407) $(11,816) $ (15,223)
====== ====== ====== ====== ====== ======
(1) Includes interest on cash equivalents and dividends on stock of
the FHLB of Seattle.
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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
Accretion of loan fees and discounts on securities for the quarter ended
March 31, 2004 totaled $7,890,000, a $1,739,000 decrease from the same
quarter one year ago. Accretion of loan fees and discounts on securities
for the six months ended March 31, 2004 totaled $16,579,000, a $6,241,000
decrease from the same period one year ago. Decreased accretion of loan
fees and discounts on securities occurred due to a slow down of
prepayments on loans and mortgage-backed securities.
Provision for Loan Losses: The Company provided no provision for loan
losses during the quarter, compared to $150,000 for the same quarter last
year. For the six months ended March 31, 2004, the Company provided no
provision for loan losses, compared to $1,400,000 for the same period one
year ago. This decrease was primarily due to strong asset quality
indicators. Nonperforming assets amounted to $25,216,000 or .33% of
total assets at March 31, 2004 compared to $28,080,000 or .38% of total
assets one year ago. Delinquencies on permanent loans have decreased
from $24,400,000 at March 31, 2003 to $23,100,000 at March 31, 2004. Net
charge-offs of $169,000 for the quarter ended March 31, 2004 remained
low and were consistent with the $85,000 of net charge-offs for the
quarter ended March 31, 2003. However, weak economic conditions,
including unemployment that is higher than the national average,
continue in the Company's primary markets.
The following table analyzes the Company's allowance for loan losses
at the dates indicated.
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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
Quarter Six Months
ended March 31, ended March 31,
------------------------- --------------------------
2004 2003 2004 2003
-------- -------- --------- ---------
(in thousands)
Beginning balance: $ 25,631 $ 24,550 $ 25,806 $ 23,912
Charge-offs:
Real Estate:
Permanent .................. 105 40 198 152
Multi-family ............... - - - -
Land ....................... 1 30 43 30
Construction ............... 75 15 146 515
-------- -------- -------- --------
181 85 387 697
Recoveries:
Real Estate:
Permanent ................. 12 - 12 -
Multi-family .............. - - - -
Land ...................... - - 31 -
Construction .............. - - - -
-------- -------- -------- --------
12 - 43 -
Net charge-offs ................... 169 85 344 697
Acquired through acquisition ...... - - - -
Provision for loan losses ......... - 150 - 1,400
-------- -------- -------- --------
Ending balance .................... $ 25,462 $ 24,615 $ 25,462 $ 24,615
======== ======== ======== ========
Ratio of net charge-offs to
average loans outstanding ......... 0.00% 0.00% 0.01% 0.01%
======== ======== ======== ========
Other Income: The quarter ended March 31, 2004 produced total other income
of $1,943,000 compared to $5,604,000 for the same quarter one year ago, a
65.3% decrease. Total other income for the six months ended March 31, 2004
was $4,666,000 compared to $7,797,000 for the six months ended March 31, 2003,
a 40.2% decrease. Total other income for the quarter and six months ended
March 31, 2003 included a $3,382,000 gain on sale of real estate. Total other
income for the quarter and six months ended March 31, 2004 included a net loss
of $659,000 and $122,000, respectively, on the sale of securities. Included
in these net amounts was a $775,000 loss resulting from the discontinuance of
a cash flow hedge, recorded at the point the forecasted transaction was deemed
probable of not occurring.
Other Expense: The quarter ended March 31, 2004 produced total other expense
of $11,103,000 compared to $11,868,000 for the same quarter one year ago, a
6.4% decrease. Total other expense for the six months ended March 31, 2004
was $21,882,000 compared to $23,520,000 for the six months ended March 31, 2003,
a 7.0% decrease. Total other expense for the quarter and six months ended
March 31, 2004 equaled .59% and .58%, respectively, of average assets, compared
to .65% and .64%, respectively, for the same periods one year ago. The number
of staff, including part-time employees on a full-time equivalent basis, was
754 at March 31, 2004 compared to 724 at March 31, 2003, however, compensation
expense remained relatively flat due to the decline in bonus compensation.
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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
Taxes: Income taxes decreased $2,807,000 or 13.7% and $5,144,000 or 12.6%
for the quarter and six month periods ended March 31, 2004, respectively,
when compared to the same periods one year ago, due to a lower taxable
income base. The effective tax rate was 35.25% for all periods presented.
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,
2003. For a complete discussion of the Company's quantitative and qualitative
market risk, see "Marnagement's Discussion and Analysis of Financial Condition
and Results of Operations" in the Company's 2003 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by 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 Senior Vice President and Chief 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
Senior Vice President and Chief 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 SEC filings. There have been no significant changes in the
Company's internal controls or in other factors that have materially
affected, or are reasonably likely to materially affect, the Company's
internal control over financial reporting.
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 Senior
Vice President and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure.
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
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, Use of Proceeds and Issuer Purchases
of Equity Securities
The Company's only stock repurchase program was publicly announced by
the Board of Directors on Febuary 3, 1995 and has no expiration date.
Under this ongoing program, a total of 19,960,240 shares have been
authorized for repurchase. There were no purchases during any of the
three months in the quarter ended March 31, 2004. As of March 31, 2004,
3,094,103 shares may still be purchased under the program.
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, Inc. was held
on January 21, 2004. Three nominees for reelection as Directors, Derek
L. Chinn, W. Alden Harris and Guy C. Pinkerton, were reelected for three-
year terms. One nominee for election as Director, Thomas F. Kenney, was
elected to a one-year term. The votes cast for Derek L. Chinn were
53,817,086 shares. The votes cast for W. Alden Harris were 53,566,098
shares. The votes cast for Guy C. Pinkerton were 64,280,559 shares. The
votes cast for Thomas F. Kenney were 64,108,382 shares.
The stockholders ratified the appointment of Deloitte & Touche LLP as the
Company's independent public accountants for the fiscal year 2004 with
69,297,883 shares cast for the proposal.
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Section 302 Certification by the Chief Executive Officer
31.2 Section 302 Certification by the Chief Financial Officer
32 Section 906 Certification by the Chief Executive Officer
and the Chief Financial Officer
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
Part II - Other Information
(b) Report on Form 8-K
1. Report filed January 16, 2004. Item included: Item 9.
Regulation FD Disclosure. The report stated that at the
Company's annual meeting of stockholders on January 21, 2004,
the Board of Directors announced a 10% stock dividend.
2. Report filed January 23, 2004. Items included: Item 9.
Regulation FD Disclosure and Item 12. Results of Operations
and Financial Condition. The report stated that the
Company announced by press release its earnings for the
quarter ended December 31, 2003 and included a copy of the
Company's fact sheet which presents certain detailed
financial information about the Company as an exhibit to the
report.
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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 11, 2004 --------------------------------------
ROY M. WHITEHEAD
Vice Chairman, President and Chief
Executive Officer
/s/ Brent J. Beardall
May 11, 2004 --------------------------------------
BRENT J. BEARDALL
Senior Vice President and Chief
Financial Officer
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