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 December 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 Exchange 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 FEBRUARY 1, 2005
Common stock, $1.00 par value 86,635,704
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2
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 December 31, 2004 and September 30, 2004 ............................ Page 3
Consolidated Statements of Operations for the quarters
ended December 31, 2004 and 2003 .......................................... Page 4
Consolidated Statements of Cash Flows for the
quarters ended December 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 10
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 19
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities ................................................................... Page 19
Item 3. Defaults Upon Senior Securities .............................................. Page 19
Item 4. Submission of Matters to a Vote of Security Holders .......................... Page 19
Item 5. Other Information ............................................................ Page 19
Item 6. Exhibits and Reports on Form 8-K ............................................. Page 20
Signatures ................................................................... Page 21
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
December 31, 2004 September 30, 2004
----------------- ------------------
(In thousands, except share data)
ASSETS
Cash and cash equivalents ......................................... $ 521,060 $ 508,361
Repurchase Agreements.............................................. 200,000 200,000
Available-for-sale securities, including encumbered
securities of $356,174 and $64,587, at fair value............... 1,071,369 899,525
Held-to-maturity securities, including encumbered
securities of $80,648 and $54,811, at amortized cost........... 150,099 156,373
Securitized assets subject to repurchase, net...................... 98,537 110,607
Loans receivable, net ............................................. 5,250,975 4,982,836
Interest receivable ............................................... 34,217 29,832
Premises and equipment, net ....................................... 62,975 63,049
Real estate held for sale ......................................... 6,948 8,630
FHLB stock ........................................................ 81,066 137,274
Intangible assets, net ............................................ 58,621 58,939
Other assets ...................................................... 7,435 13,779
----------- -----------
$ 7,543,302 $ 7,169,205
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Customer accounts
Savings and demand accounts ................................... $ 4,626,855 $ 4,569,245
Repurchase agreements with customers .......................... 37,476 41,113
----------- -----------
4,664,331 4,610,358
FHLB advances ..................................................... 1,200,000 1,200,000
Other borrowings................................................... 400,000 100,000
Advance payments by borrowers for taxes and insurance ............. 11,029 25,226
Federal and state income taxes .................................... 79,389 62,081
Accrued expenses and other liabilities ............................ 52,446 51,352
----------- -----------
6,407,195 6,049,017
STOCKHOLDERS' EQUITY
Common stock, $1.00 par value, 300,000,000 shares authorized;
103,902,395 and 103,821,846 shares issued;
86,628,106 and 86,547,557 shares outstanding ................. 103,902 94,383
Paid-in capital ................................................... 1,226,541 1,161,627
Accumulated other comprehensive income, net of taxes .............. 12,330 17,107
Treasury stock, at cost; 17,274,289 shares ........................ (206,666) (206,666)
Retained earnings ................................................. - 53,737
----------- -----------
1,136,107 1,120,188
----------- -----------
$ 7,543,302 $ 7,169,205
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Quarter Ended December 31
----------------------------
2004 2003
-------- --------
(In thousands, except per share data)
INTEREST INCOME
Loans and securitized assets subject to repurchase ........ $ 86,885 $ 82,395
Mortgage-backed securities ................................. 12,834 11,734
Investment securities and cash equivalents.................. 7,824 8,553
-------- --------
107,543 102,682
INTEREST EXPENSE
Customer accounts .......................................... 23,892 21,637
FHLB advances and other borrowings ......................... 18,254 22,419
-------- --------
42,146 44,056
-------- --------
NET INTEREST INCOME ........................................ 65,397 58,626
Provision for loan losses .................................. - -
-------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES ........ 65,397 58,626
OTHER INCOME
Gain on sale of securities, net ............................ 64 536
Other ...................................................... 2,515 2,569
-------- --------
2,579 3,105
OTHER EXPENSE
Compensation and fringe benefits ........................... 8,334 7,559
Occupancy .................................................. 1,836 1,805
Other ...................................................... 1,808 1,796
-------- --------
11,978 11,160
Gain on real estate acquired through
foreclosure, net ...................................... 218 125
-------- --------
INCOME BEFORE INCOME TAXES ................................. 56,216 50,696
Income taxes ............................................... 19,957 17,873
-------- --------
NET INCOME ................................................. $ 36,259 $ 32,823
======== ========
PER SHARE DATA
Basic earnings ............................................. $ 0.42 $ 0.38
Diluted earnings ........................................... .41 .38
Cash dividends ............................................. .19 .18
Weighted average number of shares outstanding,
including dilutive stock options ......................... 87,440,181 87,036,888
Return on average assets ................................... 1.96% 1.74%
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Quarter Ended
----------------------------
December 2004 December 2003
------------- -------------
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income ............................................................. $ 36,259 $ 32,823
Adjustments to reconcile net income to net cash provided by
operating activities
Amortization of fees, discounts, and premiums, net ................... (1,115) (2,319)
Amortization of intangible assets .................................... 318 368
Depreciation ......................................................... 660 630
Gain on investment securities and real estate held for sale, net ..... (282) (661)
Decrease (increase) in accrued interest receivable ................... (4,385) 76
Decrease in income taxes payable ..................................... 19,909 12,872
FHLB stock dividends ................................................. - (1,815)
Decrease in other assets ............................................. 3,393 777
Increase (decrease) in accrued expenses and other liabilities ........ 1,094 (4,826)
--------- ---------
Net cash provided by operating activities .............................. 55,851 37,925
CASH FLOWS FROM INVESTING ACTIVITIES
Loans originated
Single-family residential loans ...................................... (282,033) (255,651)
Construction loans ................................................... (176,616) (114,660)
Land loans ........................................................... (72,727) (63,437)
Multi-family loans.................................................... (32,596) (49,514)
--------- ---------
(563,972) (483,262)
Savings account loans originated ....................................... (340) (254)
Loan principal repayments .............................................. 399,879 446,757
Increase in undisbursed loans in process ............................... 12,691 12,981
Loans purchased ........................................................ (103,828) (168)
FHLB stock redemption .................................................. 56,208 -
Available-for-sale securities purchased................................. (274,774) (169,992)
Principal payments and maturities of available-for-sale securities ..... 73,937 71,364
Available-for-sale securities sold...................................... 25,000 158,171
Held-to-maturity securities purchased .................................. - (56,900)
Principal payments and maturities of held-to-maturity securities ....... 6,371 25,436
Proceeds from sales of real estate held for sale ....................... 2,118 4,377
Premises and equipment purchased, net .................................. (586) (650)
--------- ---------
Net cash provided (used) by investing activities ....................... (367,296) 7,860
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in customer accounts ...................................... 53,973 1,562
Net increase in borrowings ............................................. (300,000) -
Proceeds from exercise of common stock options ......................... 894 1,278
Dividends paid ......................................................... (16,526) (15,593)
Decrease in advance payments by borrowers for taxes and insurance ...... (14,197) (13,217)
--------- ---------
Net cash provided (used) by financing activities ....................... 324,144 (25,970)
INCREASE IN CASH AND CASH EQUIVALENTS................................... 12,699 19,815
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ....................... 508,361 1,437,208
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................. $ 521,060 $1,457,023
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
NON-CASH INVESTING ACTIVITIES
Real estate acquired through foreclosure ............................. $ 218 $ 1,920
CASH PAID DURING THE PERIOD FOR
Interest ............................................................. 41,635 45,817
Income taxes ......................................................... 593 5,055
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED DECEMBER 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, 2004 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 2004 Annual Report on Form 10-K
("2004 Form 10-K") to the Securities and Exchange Commission ("SEC").
Interim results are not necessarily indicative of results for a full year.
On December 16, 2004, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment
("SFAS 123R"). SFAS 123R eliminates the alternative of applying the intrinsic
value measurement provisions of Opinion 25 to stock compensation awards issued
to employees. Rather, the new standard requires companies to measure the cost
of employee services received in exchange for an award of equity instruments
based on the grant-date estimated fair value of the award. That estimated cost
will be recognized over the period during which an employee is required to
provide services in exchange for the award, known as the requisite service
period (usually the vesting period).
The Company has not yet quantified the effects of the adoption of SFAS 123R,
but it is expected that the new standard may result in significant stock-based
compensation expense. The pro forma effects on net income and earnings per
share if the Company had applied the fair value recognition provisions of
original SFAS 123 on stock compensation awards (rather than applying the
intrinsic value measurement provisions of Opinion 25) are disclosed in the
table on page 7. Although such pro forma effects of applying original SFAS
123 may be indicative of the effects of adopting SFAS 123R, the provisions of
these two statements differ in some important respects. The actual effects of
adopting SFAS 123R will be dependent on numerous factors including, but not
limited to, the valuation model chosen by the Company to estimate the value of
stock-based awards; the assumed award forfeiture rate; the accounting policies
adopted concerning the method of recognizing the fair value of awards over the
requisite service period; and the transition method (as described below) chosen
for adopting SFAS 123R.
SFAS 123R will be effective for the Company's fiscal quarter beginning July 1,
2005, and requires the use of the Modified Prospective Application Method.
Under this method SFAS 123R is applied to new awards and to awards modified,
repurchased or cancelled after the effective date. Additionally, compensation
cost for the portion of awards for which the requisite service has not been
rendered (such as unvested options) that are outstanding as of the date of
adoption shall be recognized as the remaining requisite services are rendered.
The compensation cost relating to unvested awards at the date of adoption shall
be based on the grant-date estimated fair value of those awards as calculated
for pro forma disclosures under the original SFAS 123.
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED DECEMBER 31, 2004 AND 2003
(Unaudited)
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 2004 Form 10-K where the Company's three stock-
option employee compensation plans, as well as the weighted-average
assumptions utilized in the Black-Scholes model, are more fully described.
The following table illustrates the effect on net income and earnings per
share as if the Company had applied the fair value recognition provisions of
the original SFAS 123:
Quarter Ended December 31,
2004 2003
---------- ----------
(In thousands, except per share data)
Net income, as reported $ 36,259 $ 32,823
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax
effects (429) (448)
--------- ----------
Pro forma net income $ 35,830 $ 32,375
========= ==========
Earnings per share:
Basic - as reported $ 0.42 $ 0.38
Basic - pro forma 0.41 0.38
Diluted - as reported 0.41 0.38
Diluted - pro forma 0.41 0.37
Certain reclassifications have been made to the financial statements to conform
prior periods to current classifcations.
NOTE B - Dividends
Dividends per share were 19 cents for the quarter ended December 31, 2004
compared with 18 cents for the same period one year ago. On January 14, 2005,
the Company paid its 88th consecutive quarterly cash dividend.
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED DECEMBER 31, 2004 AND 2003
(Unaudited)
On January 19, 2005, 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 4, 2005, which will be distributed on February 18, 2005.
All previously reported share and per share amounts have been adjusted
accordingly, as the record date for the stock dividend occurred prior to the
filing of this Form 10-Q. Accordingly, the changes in capital (transfer from
retained earnings to common stock and additional paid in capital) have been
retroactively applied to the December 31, 2004 balance sheet. Amounts presented
in the press release dated January 13, 2005, for the quarter ended December 31,
2004, had not been adjusted as the press release occurred before the
announcement and record date of the stock dividend.
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 the effective portion of the change in fair value of forward
commitments to purchase or sell mortgage-backed securities that are designated
as cash flow hedges. Total comprehensive income for the quarters ended
December 31, 2004 and December 31, 2003 totaled $31,482,000 and $28,919,000,
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 available-for-sale securities and the effective portion of the
change in fair value of forward commitments to purchase or sell mortgage-
backed securities that are designated as cash flow hedges during the
applicable periods.
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 quarters ended
December 31, 2004 and 2003:
Quarter
Ended December 31,
2004 2003
---------- ----------
(In thousands)
Balance at beginning of period...... $ 25,140 $ 25,806
Provision for loan losses........... - -
Charge-offs......................... (132) (207)
Recoveries.......................... - 31
--------- ----------
Balance at end of period............ $ 25,008 $ 25,630
========= ==========
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WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED DECEMBER 31, 2004 AND 2003
(Unaudited)
Note E - Investments
As of December 31, 2004, the Company had investments in Fannie Mae and
Freddie Mac preferred stock of $81,028,000 (amortized cost basis) with an
estimated fair value of $73,958,000. These investments are included as part of
the Company's available-for-sale investments; therefore, the $7,070,000 (pre-
tax) unrealized loss is included in equity as a part of accumulated other
comprehensive income. The Company continues to evaluate these investments for
any other than temporary impairment. As of December 31, 2004, the Company
determined that no other than temporary impairment charge was necessary.
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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 and hold for investment 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 December 31, 2004, the Company had a negative one-year maturity gap of
approximately 19% of total assets, compared to a 17% negative one-year
maturity gap as of December 31, 2003. The increase in interest rate risk
is the result of the Company investing a portion of its short-term assets
into longer-term assets over the course of the last twelve-month period.
The interest rate spread decreased to 2.85% at December 31, 2004 from
3.00% at September 30, 2004, primarily due to growth in long-term assets
and borrowings. As of December 31, 2004, the Company had grown total assets
by $374,097,000 from $7,169,205,000 at September 30, 2004. Short-term
investments (original maturities less than one year) increased only
$12,699,000 during the quarter. Loans and mortgaged-backed securities
increased $433,534,000 to $6,168,092,000 as of December 31, 2004. Long-
term borrowings increased $300,000,000 during the quarter, as the Company
chose to lock in long-term funding at a weighted-avereage rate of 3.79%.
Total short-term assets of $721,060,000, which represents 10% of total
assets, provides management with flexibility in managing interest rate risk
going forward.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net worth at December 31, 2004 was $1,136,107,000, or 15.06% of
total assets. This was an increase of $15,919,000 from September 30, 2004
when net worth was $1,120,188,000, or 15.62% of total assets. The
increase in the Company's net worth included $36,259,000 from net income.
Net worth was reduced by $16,526,000 of cash dividend payments.
The Company's percentage of net worth to total assets is among the
highest in the industry 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 $171,844,000 or 19.1% during the quarter ended
December 31, 2004. For the quarter ended December 31, 2004 the Company
purchased $274,774,000 of available-for-sale investment securities, in
addition to selling $25,000,000 of available-for-sale securities at a net gain
of $64,000. There were no purchases of held-to-maturity securities during
the quarter ended December 31, 2004. As of December 31, 2004, the Company
had unrealized gains on available-for-sale securities of $11,546,000, net of
tax, which were recorded as part of stockholders' equity.
Loans receivable and securitized assets subject to repurchase: During the
quarter ended December 31, 2004, the combined total of loans receivable and
securitized assets subject to repurchase increased 5.0% to $5,349,512,000
compared to $5,093,443,000 at September 30, 2004. This modest growth was
consistent with Management's strategy to increase net loans during this
period of increasing home mortgage rates. Permanent single-family
residential loans as a percentage of total loans decreased to 70.7% at
December 31, 2004 compared to 71.2% at September 30, 2004. The aggregate of
construction and land loans (gross of loans in process) as a percentage
of total loans increased to 21.2% at December 31, 2004 compared to 20.4% at
September 30, 2004.
Non-performing assets: Non-performing assets decreased 13.7% during the
quarter ended December 31, 2004 to $12,896,000 from $14,945,000 at
September 30, 2004, due to a strong housing market in the western United
States and increased sales of real estate held for sale.
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
December 31, September 30,
2004 2004
---------- ----------
(In thousands)
Restructed loans (1) $ 763 $ 803
Nonaccrual loans:
Single-family residential 7,040 7,589
Construction 2,690 2,965
Land 657 252
Multi-family 415 322
---------- ----------
Total nonaccrual loans (2) 10,802 11,128
Total REO (3) 2,094 3,817
---------- ----------
Total non-performing assets $ 12,896 $ 14,945
========== ==========
Total non-performing assets and
restructured loans $ 13,659 $ 15,748
========== ==========
Total non-performing assets and
restructured loans as a percentage
of total assets 0.18% 0.22%
========== ==========
(1) Performing in accordance with restructured terms.
(2) The Company recognized interest income on nonaccrual loans
of approximately $170,000 in the quarter ended December 31,
2004. Had these loans performed according to their
original contract terms, the Company would have
recognized interest income of approximately $666,000
for the quarter ended December 31, 2004.
In addition to the nonaccrual loans reflected in the above
table, at December 31, 2004, the Company had $65,000 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 remained at .18% at
December 31, 2004.
(3) Total REO (included in real estate held for sale on the
Statement of Financial Condition) 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.
December 31, 2004 September 30, 2004
------------------------ ------------------------
Loans to Loans to
Amount Total Loans 1 Amount Total Loans 1
---------- ----------- ---------- -----------
(In thousands)
Real estate:
Single-family residential.. $ 9,200 70.7% $ 8,517 71.2%
Multi-family .............. 5,930 8.1 6,084 8.4
Land ...................... 3,051 5.7 3,470 5.3
Construction .............. 6,827 15.5 7,069 15.1
---------- ---------- ---------- ----------
$ 25,008 100.0% $ 25,140 100.0%
========== ========== ========== ==========
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.
Customer accounts: Customer accounts increased $53,973,000, or 1.2%,
to $4,664,331,000 at December 31, 2004 compared with $4,610,358,000 at
September 30, 2004.
FHLB advances and other borrowings: Total borrowings increased $300,000,000,
or 23.1%, to $1,600,000,000 at December 31, 2004 compared with
$1,300,000,000 at September 30, 2004. The $300,000,000 of 5 year maturity
reverse repurchase agreements had a weigthed-avereage rate of 3.79%.
RESULTS OF OPERATIONS
Net Income: The quarter ended December 31, 2004 produced net income of
$36,259,000 compared to $32,823,000 for the same quarter one year ago,
a 10.5% increase. Net income increased primarily as a result of increased
balances of loans and mortgage-backed securities as well as reduced
borrowing costs.
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.
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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
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 changes 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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15
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
12/31/04 and 12/31/03
Volume Rate Total
------- ------- -------
(In thousands)
Interest Income:
Loan Portfolio ................. $ 6,220 $(1,730) $ 4,490
Mortgaged-backed securities .... 2,196 (1,096) 1,100
Investments (1) ................ (3,193) 2,464 (729)
------ ------ ------
All interest-earning assets .... 5,223 (362) 4,861
------ ------ ------
Interest Expense:
Customer Accounts .............. 41 2,214 2,255
FHLB advances and other
borrowings ..................... (3,234) (931) (4,165)
------ ------ ------
All interest-bearing liabilities . (3,193) 1,283 (1,910)
------ ------ ------
Change in net interest income .... $ 8,416 $ (1,645) $ 6,771
====== ====== ======
(1) Includes interest on cash equivalents and dividends on stock of
the FHLB of Seattle.
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16
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Provision for Loan Losses: The Company recorded no provision for loan losses
during either of the quarters ended December 31, 2004 and 2003. Nonperforming
assets amounted to $12,896,000 or .17% of total assets at December 31, 2004
compared to $24,785,000 or .33% of total assets one year ago. Delinquencies
on permanent loans have decreased from $24,500,000 at December 31, 2003 to
$16,500,000 at December 31, 2004. Net charge-offs of $132,000 for the quarter
ended December 31, 2004 remained low and were less than the $176,000 of net
charge-offs for the quarter ended December 31, 2003. During the quarter ended
December 31, 2004, the combined total of loans receivable and securitized
assets subject to repurchase increased 5.0% to $5,349,512,000 compared to
$5,093,443,000 at September 30, 2004. It should be noted that uncertain
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.
Quarter
Ended December 31,
------------------------
2004 2003
-------- --------
(In thousands)
Beginning balance $ 25,140 $ 25,806
Charge-offs:
Real Estate:
Single-family residential... 118 94
Multi-family ............... 14 -
Land ....................... - 42
Construction ............... - 71
-------- --------
132 207
Recoveries:
Real Estate:
Single-family residential.. - -
Multi-family .............. - -
Land ...................... - 31
Construction .............. - -
-------- --------
- 31
Net charge-offs ................... 132 176
Acquired through acquisition ...... - -
Provision for loan losses ......... - -
-------- --------
Ending balance .................... $ 25,008 $ 25,630
======== ========
Ratio of net charge-offs to
average loans outstanding ......... 0.00% 0.00%
======== ========
Other Income: The quarter ended December 31, 2004 produced total other income
of $2,579,000 compared to $3,105,000 for the same quarter one year ago, a
16.9% decrease. The quarter to quarter difference in total
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17
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
other income resulted primarily from the recognition of a $536,000 net gain on
the sale of securities in the quarter ended December 31, 2003.
Other Expense: The quarter ended December 31, 2004 produced total other expense
of $11,978,000 compared to $11,160,000 for the same quarter one year ago, a
7.3% increase. The primary reason for this increase was a bonus compensation
accrual of $650,000 recorded in the current quarter due to increased earnings
per share. Total other expense for quarter equaled .65% of average assets,
compared to .59% for the same period one year ago. The number of staff,
including part-time employees on a full-time equivalent basis, was
749 at December 31, 2004 and 751 at December 31, 2003.
Taxes: Income taxes increased $2,084,000 or 11.7% for the quarter ended
December 31, 2004 when compared to the same period one year ago due to a higher
taxable income base. In addition, the effective tax rate increased to 35.50%
for the quarter ended December 31, 2004 from 35.25% for the same period one year
ago.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management believes that there have been no material changes in the Company's
quantitative and qualitative information about market risk since September 30,
2004, other than the increase in the one year negative gap as described under
"Interest Rate Risk" in Item 2 above. 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 2004 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
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18
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 4. CONTROLS AND PROCEDURES
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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19
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 following table provides information with respect to purchases made
by or on behalf of the Company of the Company's common stock during the
three months ended December 31, 2004.
Maximum
Number of Shares
Total Number That May Yet
Purchased as Part Be Purchased
Total Number Average of Publicly Under the Plan
of Shares Price Paid Announced at the End of
Period Purchased Per Share Plan (1) the Period
- -------------------------------------------- ---------- ---------- ---------- ----------
October 1, 2004 to October 31, 2004 - $ - - 3,310,013
November 1, 2004 to November 30, 2004 - - - 3,310,013
December 1, 2004 to December 31, 2004 - - - 3,310,013
---------- ---------- ---------- ----------
Total - $ - - 3,310,013
========== ========== ========== ==========
(1) The Company's only stock repurchase program was publicly announced by
the Board of Directors on February 3, 1995 and has no expiration date.
Under this ongoing program, a total of 21,956,264 shares have been
authorized for purchase.
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
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20
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
Part II - Other Information
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
(b) Reports on Form 8-K
1. Report filed October 19, 2004. Items included: Item 8.01.
Other Events. The report stated that the Company had reviewed
the accounting treatment of its cash flow hedges under Statement
of Financial Accounting Standard No. 133, "Accounting for
Derivative Instruments and Hedging Activities". The result
of the review was that certain portions of net unrealized
gains on such cash flow hedges were incorrectly recorded in
prior periods as a part of stockholders' equity through other
comprehensive income and would be reclassified to net income in
the Company's restated financial statements for fiscal years 2001
through 2003. The cumulative impact of the restatement was an
increase in net income of approximately $7,735,000 or 1.92%.
2. Report filed October 21, 2004. Items included: Item 2.02 Results
of Operations and Financial Condition, Item 7.01 Regulation FD
Disclosure and Item 9.01 Financial Statements and Exhibits. The
report stated that the Company announced by press release its
earnings for the quarter ended September 30, 2004 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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21
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.
February 8, 2005 /s/ Roy M. Whitehead
--------------------------------------
ROY M. WHITEHEAD
Vice Chairman, President and Chief
Executive Officer
February 8, 2005 /s/ Brent J. Beardall
--------------------------------------
BRENT J. BEARDALL
Senior Vice President and Chief
Financial Officer
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