Washington Federal, Inc. (Nasdaq: WAFD) (the “Company”), parent company of Washington Federal, National Association, today announced quarterly earnings of $51,098,000 or $0.63 per diluted share for the quarter ended March 31, 2019, compared to $49,271,000 or $0.57 per diluted share for the quarter ended March 31, 2018, a $0.06 or 11% increase in fully diluted earnings per share. Return on equity for the quarter ended March 31, 2019 was 10.20% compared to 9.81% for the quarter ended March 31, 2018. Return on assets for the quarter ended March 31, 2019 was 1.24% compared to 1.26% for the same quarter in the prior year.
President and Chief Executive Officer Brent J. Beardall commented, We are pleased to report another solid quarter of growth in core earnings, loans and deposits. Credit quality continues to improve with the economic expansion. We acknowledge that this is a challenging interest rate environment. Over the past three and a half years, the Federal Reserve Bank has increased short-term interest rates from 0.25% to 2.50% while long-term rates remained relatively flat at around 2.50%. Despite this flattening of the yield curve, Washington Federals net interest margin declined only 3 basis points from 3.18% to 3.15% and net interest income grew by 12%1. Those results were possible due to the progress we have made in growing our commercial banking capabilities, demonstrated by the significant growth of our transaction deposits and commercial loans.
“During the quarter we launched a program designed specifically to help government workers (both current clients and non-clients) impacted by the government shutdown. In the span of three weeks, the program generated over 14,000 visits to Washington Federal’s website, 1,700 new loan approvals totaling $24 million of available credit and 1,700 new checking account openings. Outstanding loan balances are down to $4 million since, when the government re-opened, most of those clients chose to repay us immediately. We expect the remaining loan balances will be repaid over time. Most importantly, by doing the right thing we were able to help neighbors in their time of need and gain customers for life. As one client told us in a letter, it is nice to be with a bank that has ‘heart.’ We believe that making a reasonable profit and doing what is right to help our communities often go hand-in-hand.”
Total assets were $16.4 billion as of March 31, 2019, compared to $15.9 billion as of September 30, 2018, the Company’s fiscal year-end. Asset growth since September 30, 2018 is primarily attributable to a $418 million increase in net loans receivable.
Customer deposits increased by $335 million or 2.9% since September 30, 2018, reaching a total of $11.7 billion as of March 31, 2019. Transaction accounts increased by $201 million or 3.0% during that period, while time deposits increased $135 million or 2.8%. The Company continues to focus on growing transaction accounts to lessen sensitivity to rising interest rates and manage interest expense. As of March 31, 2019, 58% of the Companys deposits were in transaction accounts. Core deposits, defined as all transaction accounts and time deposits less than $250,000, totaled 93.1% of deposits at March 31, 2019.
In 2013 – 2014, the Company acquired 74 branches and $1.9 billion of deposits from Bank of America in rural areas of Arizona, New Mexico, Nevada, Idaho and Washington. Since the close of those transactions, the number of accounts in those branches has fallen by approximately 48%, but the amount of deposit dollars has increased by 25%.
Borrowings from the Federal Home Loan Bank (“FHLB”) totaled $2.6 billion as of March 31, 2019, versus $2.3 billion at September 30, 2018. The weighted average rate of FHLB borrowings was 2.77% as of March 31, 2019, versus 2.66% at September 30, 2018, the increase being due to higher rates on short-term FHLB advances.
Loan originations totaled $1.0 billion for the second fiscal quarter 2019, an increase of 22.0% from the $819 million of originations in the same quarter one year ago. Partially offsetting loan originations in each of these quarters were loan repayments of $773 million and $744 million, respectively. Commercial loans represented 77% of all loan originations during the second fiscal quarter 2019 and consumer loans accounted for the remaining 23%. The Company views organic loan growth, funded by low cost core deposits, as the highest and best use of its capital. Commercial loans are preferable in this interest rate environment because they generally have floating interest rates and shorter durations. The weighted average interest rate on the loan portfolio was 4.61% as of March 31, 2019, an increase from 4.48% as of September 30, 2018, due primarily to variable rate loans increasing in yield with rising short-term rates.
Asset quality remained strong and the ratio of non-performing assets to total assets improved to 0.36% as of March 31, 2019, compared to 0.45% at March 31, 2018 and 0.44% at September 30, 2018. Since September 30, 2018, real estate owned decreased by $4 million, or 33%, and non-accrual loans decreased by $7 million, or 12%. Delinquent loans were 0.40% of total loans at March 31, 2019, compared to 0.40% at March 31, 2018 and 0.42% at September 30, 2018. The allowance for loan losses and reserve for unfunded commitments totaled $139 million as of March 31, 2019, and was 1.05% of gross loans outstanding, as compared to $137 million, or 1.06%, of gross loans outstanding at September 30, 2018. Net recoveries were $1.2 million for the second fiscal quarter of 2019, compared to $1.4 million for the prior year’s quarter. The Company has recorded net recoveries for 15 consecutive quarters, and in 22 of the last 23 quarters.
On February 22, 2019, the Company paid a regular cash dividend of $0.20 per share, which represented the 144th consecutive quarterly cash dividend. During the quarter, the Company repurchased 698,705 shares of common stock at a weighted average price of $29.65 per share and has authorization to repurchase 9,593,701 additional shares. The Company varies the pace of share repurchases depending on several factors, including share price, lending opportunities and capital levels. Since September 30, 2018, tangible common stockholders equity per share increased by $0.68, or 3.3%, to $21.06, and the ratio of tangible common equity to tangible assets remained strong at 10.51% as of March 31, 2019.
Net interest income was $120 million for the quarter, an increase of $2.8 million or 2.4% from the same quarter in the prior year. The increase in net interest income from the prior year was primarily due to higher balances as average earning assets increased by $822 million, or 5.7%. Net interest margin decreased to 3.15% in the second fiscal quarter of 2019, from 3.25% for the same quarter in the prior year as the average rate earned on interest-earning assets rose by 26 basis points while the average rate paid on interest-bearing liabilities increased 40 basis points. The compression in the net interest margin is the result of the flat to inverted yield curve.
The Company recorded a provision for loan losses of $750,000 in the second fiscal quarter of 2019, compared with a release of loan loss allowance of $950,000 in the same quarter of fiscal 2018. The increased provision was due to loan growth and a smaller net recovery of prior charge-offs.
Total other income was $12.8 million for the second fiscal quarter of 2019, an increase from $12.6 million in the same quarter of the prior year.
Total operating expenses were $68.0 million in the second fiscal quarter of 2019, an increase of $2.2 million, or 3.3%, from the prior year’s quarter. Increased operating expenses are the result of ongoing investments in people, process and technology with the objective of growing market share and ultimately earnings. Compensation and benefits costs increased by $1.1 million over the prior year quarter primarily due to headcount increases, the aforementioned salary increases and cost of living adjustments since last year. Other expenses increased by $1.2 million, primarily due to Bank Secrecy Act (BSA) program enhancements. In the second fiscal quarter of 2019, the Company had approximately $1.2 million of non-recurring BSA related costs and estimates that it will incur an additional $1 million of non-recurring costs for BSA improvements in the third fiscal quarter. The Companys efficiency ratio in the second fiscal quarter of 2019 was 51.2%, compared to 50.7% for the same period one year ago. The increase in the efficiency ratio is primarily due to the elevated expenses noted above.
Income tax expense totaled $13.9 million for the three months ended March 31, 2019, as compared to $15.5 million for the same period one year ago. The effective tax rate for the six months ended March 31, 2019 was 21.35% compared to 19.51% for the six months ended March 31, 2018 and 20.76% for the full fiscal year ended September 30, 2018. The effective tax rate for the six months ended March 31, 2018 and the full fiscal year ended September 30, 2018 was lower mainly due to discrete tax benefits related to the revaluation of deferred tax assets and liabilities based on the new federal statutory rate enacted in December 2017. The Company estimates that its annual effective tax rate for fiscal 2019 will be between 20 – 22%.
Washington Federal, a national bank with headquarters in Seattle, Washington, has 235 branches in eight western states. To find out more about Washington Federal, please visit our website www.washingtonfederal.com. Washington Federal uses its website to distribute financial and other material information about the Company.
1 Periods being compared are the quarters ended December 31, 2015 and March 31, 2019. The Federal Reserve Bank increased its target rate upper bound from 0.25% to 0.50% on December 17, 2015 and the target rate upper bound was 2.50% as of March 31, 2019. The 10-year Treasury rate was 2.30% on December 16, 2015 versus 2.41% on March 31, 2019.
Important Cautionary Statements
The foregoing information should be read in conjunction with the financial statements, notes and other information contained in the Companys 2018 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
This press release contains statements about the Companys future that are not statements of historical fact. These statements are forward looking statements for purposes of applicable securities laws, and are based on current information and/or management’s good faith belief as to future events. The words “estimate,” believe, expect, anticipate, project, and similar expressions signify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance. By their nature, forward-looking statements involve inherent risk and uncertainties, which change over time; and actual performance could differ materially from those anticipated by any forward-looking statements. The Company undertakes no obligation to update or revise any forward-looking statement.
|WASHINGTON FEDERAL, INC. AND SUBSIDIARIES|
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
|March 31, 2019||September 30, 2018|
|(In thousands, except share and ratio data)|
|Cash and cash equivalents||$||279,554||$||268,650|
|Available-for-sale securities, at fair value||1,545,606||1,314,957|
|Held-to-maturity securities, at amortized cost||1,553,683||1,625,420|
|Loans receivable, net of allowance for loan losses of $133,086 and $129,257||11,894,836||11,477,081|
|Premises and equipment, net||277,010||267,995|
|Real estate owned||7,522||11,298|
|FHLB and FRB stock||138,390||127,190|
|Bank owned life insurance||219,167||216,254|
|Intangible assets, including goodwill of $301,368 and $301,368||310,266||311,286|
|Federal and state income tax assets, net||1,804|
|LIABILITIES AND STOCKHOLDERS EQUITY|
|Advance payments by borrowers for taxes and insurance||25,839||57,417|
|Federal and state income tax liabilities, net||4,180|
|Accrued expenses and other liabilities||68,546||94,253|
|Common stock, $1.00 par value, 300,000,000 shares authorized; 135,506,620 and 135,343,417 shares issued; 80,435,217 and 82,710,911 shares outstanding||135,507||135,343|
|Additional paid-in capital||1,669,860||1,666,609|
|Accumulated other comprehensive (loss) income, net of taxes||8,634||8,294|
|Treasury stock, at cost; 55,071,403 and 52,632,506 shares||(1,071,957||)||(1,002,309||)|
|CONSOLIDATED FINANCIAL HIGHLIGHTS|
|Common stockholders’ equity per share||$||24.92||$||24.14|
|Tangible common stockholders’ equity per share||21.06||20.38|
|Stockholders’ equity to total assets||12.20||%||12.59||%|
|Tangible common stockholders’ equity to tangible assets||10.51||%||10.84||%|
|Weighted average rates at period end|
|Loans and mortgage-backed securities||4.32||%||4.19||%|
|Combined loans, mortgage-backed securities and investments||4.20||4.07|
|Combined cost of customer accounts and borrowings||1.39||1.17|
|Net interest spread||2.81||2.90|
|WASHINGTON FEDERAL, INC. AND SUBSIDIARIES|
CONSOLIDATED STATEMENTS OF OPERATIONS
|Three Months Ended March 31,||Six Months Ended March 31,|
|(In thousands, except share and ratio data)||(In thousands, except share and ratio data)|
|Investment securities and cash equivalents||7,178||4,883||13,543||9,253|
|FHLB advances and other borrowings||17,846||15,364||34,737||30,771|
|Net interest income||120,070||117,301||239,222||233,036|
|Provision (release) for loan losses||750||(950||)||250||(950||)|
|Net interest income after provision (release)||119,320||118,251||238,972||233,986|
|Gain (loss) on sale of investment securities||(9||)|
|FDIC loss share valuation adjustments||(8,550||)|
|Loan fee income||667||780||1,637||1,815|
|Deposit fee income||5,886||6,403||12,129||13,089|
|Compensation and benefits||32,774||31,625||66,657||61,244|
|FDIC insurance premiums||1,978||2,852||4,840||5,672|
|Gain (loss) on real estate owned, net||808||(278||)||1,128||(232||)|
|Income before income taxes||64,971||64,773||132,280||125,408|
|Income tax provision||13,873||15,502||28,240||24,467|
|PER SHARE DATA|
|Basic earnings per share||$||0.63||$||0.58||$||1.28||$||1.17|
|Diluted earnings per share||0.63||0.57||1.28||1.17|
|Cash dividends per share||0.20||0.17||0.38||0.32|
|Basic weighted average shares outstanding||80,968,050||85,647,494||81,384,456||86,299,885|
|Diluted weighted average shares outstanding||80,990,126||85,747,167||81,415,697||86,422,077|
|Return on average assets||1.24||%||1.26||%||1.28||%||1.31||%|
|Return on average common equity||10.20||9.81||10.42||10.03|
|Net interest margin||3.15||3.25||3.18||3.26|
Washington Federal, Inc.
Brad Goode, SVP, Director of Communications