Washington Federal Announces Quarterly Earnings Per Share of $0.65
January 14, 2019
SEATTLE–(BUSINESS WIRE)–Washington Federal, Inc. (Nasdaq: WAFD) (the “Company”), parent company
of Washington Federal, National Association, today announced quarterly
earnings of $52,942,000 or $0.65 per diluted share for the quarter ended
December 31, 2018, compared to $51,670,000 or $0.59 per diluted share
for the quarter ended December 31, 2017, a $0.06 or 10% increase in
fully diluted earnings per share. Return on equity for the quarter ended
December 31, 2018 was 10.64% compared to 10.25% for the quarter ended
December 31, 2017. Return on assets for the quarter ended December 31,
2018 was 1.32% compared to 1.35% for the same quarter in the prior year.
President and Chief Executive Officer Brent J. Beardall commented, “We
are pleased to begin the fiscal year with record quarterly net income
and earnings per share. This quarter saw an acceleration of interest
expense as the costs of interest-bearing liabilities increased by 45%
year-over-year, reflecting increased short-term interest rates. Despite
the large increase in interest expense, we were able to grow net
interest income by 3% over the same period thanks to growth in our loan
portfolio and asset yields. While the flat yield curve poses a challenge
for all banks, we are optimistic that we will continue to be able to
grow earning assets to offset rising deposit costs. With the Company’s
stock trading at about 1.3 times tangible book value and 11 times
trailing twelve months earnings, we believe the stock is trading below
its intrinsic value. As a result, we have continued to be aggressive,
repurchasing over 1.7 million shares of stock this quarter, which was
2.1% of the shares outstanding at the beginning of the quarter.”
Total assets were $16.2 billion as of December 31, 2018, 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
$223 million increase in net loans receivable.
Customer deposits increased by $175 million or 1.5% since September 30,
2018, reaching a total of $11.6 billion as of December 31, 2018.
Transaction accounts increased by $162 million or 2.5% during that
period, while time deposits increased $13 million or 0.3%. The Company
continues to focus on growing transaction accounts to lessen sensitivity
to rising interest rates and manage interest expense. As of December 31,
2018, just over 58% of the Company’s deposits were in transaction
accounts. Core deposits, defined as all transaction accounts and time
deposits less than $250,000, totaled 93.4% of deposits at December 31,
2018.
Borrowings from the Federal Home Loan Bank (“FHLB”) totaled $2.5 billion
as of December 31, 2018, versus $2.3 billion at September 30, 2018. The
weighted average rate of FHLB borrowings was 2.75% as of December 31,
2018, versus 2.66% at September 30, 2018, the increase being due to
higher rates on short-term FHLB advances.
Loan originations totaled $1.045 billion for the first fiscal quarter
2019, an increase of 9.6% from the $954 million of originations in the
same quarter one year ago. Partially offsetting loan originations in
each of these quarters were loan repayments of $872 million and $860
million, respectively. Commercial loans represented 73% of all loan
originations during the first fiscal quarter 2019 and consumer loans
accounted for the remaining 27%. The Company views organic loan growth
as the highest and best use of its capital and prefers commercial loans
as they generally have floating interest rates and shorter durations.
The weighted average interest rate on loans was 4.56% as of December 31,
2018, 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 0.39% as of December 31, 2018, compared to
0.41% at December 31, 2017, and 0.44% at September 30, 2018. Since
September 30, 2018, real estate owned decreased by $3 million, or 28%,
and non-accrual loans decreased by $4 million, or 8%. Delinquent loans
were 0.42% of total loans at December 31, 2018, compared to 0.43% at
December 31, 2017, and 0.42% at September 30, 2018. The allowance for
loan losses and reserve for unfunded commitments totaled $137 million as
of December 31, 2018, and was 1.06% of gross loans outstanding, as
compared to $137 million or 1.06% of gross loans outstanding at
September 30, 2018.
On November 23, 2018, the Company paid a regular cash dividend of $0.18
per share, which represented the 143rd consecutive quarterly
cash dividend. During the quarter, the Company repurchased 1,740,192
shares of common stock at a weighted average price of $28.12 per share
and has authorization to repurchase 292,406 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 $0.23, or 1.2%, to $20.61, and the ratio of
tangible common equity to tangible assets remained strong at 10.53% as
of December 31, 2018.
Net interest income was $119 million for the quarter, an increase of
$3.4 million or 3.0% 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 $655 million, or
4.6%. Net interest margin decreased to 3.21% in the first fiscal quarter
of 2019, from 3.26% for the same quarter in the prior year as the
average rate earned on interest-earning assets rose by 27 basis points
while the average rate paid on interest-bearing liabilities increased 33
basis points.
The Company recorded a release of loan loss allowance of $500,000 in the
first fiscal quarter of 2019, compared with no provision or release in
the same quarter of fiscal 2018. Net recoveries were $1.4 million for
the first fiscal quarter of 2019, compared to $3.1 million for the prior
year’s quarter.
Total other income was $19.0 million for the first fiscal quarter of
2019, an increase of $12.2 million, from $6.8 million in the same
quarter of the prior year. The increase is primarily due to a net gain
of $6.4 million recognized this quarter from the sale and valuation
adjustments of fixed assets as well as $8.6 million of expense from FDIC
loss share valuation adjustments in the prior year quarter.
Total operating expenses were $71.7 million in the first fiscal quarter
of 2019, an increase of $9.7 million, or 15.7%, from the prior year’s
quarter. As discussed previously, the Company has taken the opportunity
allotted by the change in the tax law to make several strategic
investments that have resulted in a higher level of operating expenses
year over year. Those investments included a 5% salary increase for all
employees earning less than $100,000; the establishment of a second
technology team located in Boise, Idaho; the creation of an internal
training team; and several new platform and system enhancements.
Compensation and benefits costs increased by $4.3 million over the prior
year quarter primarily due to headcount increases, the aforementioned
salary increases and cost of living adjustments since last year.
Information technology costs increased by $1.1 million and other
expenses increased by $3.7 million, both primarily due to Bank Secrecy
Act (BSA) program enhancements. In the first fiscal quarter of 2019, the
Company had approximately $3.6 million of non-recurring BSA related
costs and estimates that it will incur an additional $2 million of
non-recurring costs for BSA improvements spread over the next two
quarters. The Company’s efficiency ratio in the first fiscal quarter of
2019 was 51.9%, compared to 47.3% 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 $14.4 million for the three months ended
December 31, 2018, as compared to $9.0 million for the same period one
year ago. The effective tax rate for the three months ended December 31,
2018 was 21.35% compared to 14.79% for the three months ended
December 31, 2017 and 20.76% for the full fiscal year ended
September 30, 2018. The effective tax rate for the three months ended
December 31, 2017 was lower due to discrete tax benefits of $3.7 million
recognized related to the revaluation of deferred tax assets and
liabilities stemming from tax reform as well as tax benefits of $2.2
million related to stock based compensation. The Company estimates that
its annual effective tax rate for fiscal 2019 will be 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.
Important Cautionary Statements
The foregoing information should be read in conjunction with the
financial statements, notes and other information contained in the
Company’s 2018 Annual Report on Form 10-K, Quarterly Reports on Form
10-Q and Current Reports on Form 8-K.
This press release contains statements about the Company’s future that
are not statements of historical fact. These statements are “forward
looking statements” for purposes of applicable securities laws, and are
based on current information and/or management’s good faith belief as to
future events. The words “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 |
||||||||
|
(UNAUDITED) |
||||||||
| December 31, 2018 | September 30, 2018 | |||||||
| (In thousands, except share and ratio data) | ||||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | 283,375 | $ | 268,650 | ||||
| Available-for-sale securities, at fair value | 1,451,340 | 1,314,957 | ||||||
| Held-to-maturity securities, at amortized cost | 1,586,815 | 1,625,420 | ||||||
|
Loans receivable, net of allowance for loan losses of $131,165 and $129,257 |
11,700,239 | 11,477,081 | ||||||
| Interest receivable | 48,207 | 47,295 | ||||||
| Premises and equipment, net | 276,683 | 267,995 | ||||||
| Real estate owned | 8,171 | 11,298 | ||||||
| FHLB and FRB stock | 135,590 | 127,190 | ||||||
| Bank owned life insurance | 217,751 | 216,254 | ||||||
| Intangible assets, including goodwill of $301,368 and $301,368 | 310,776 | 311,286 | ||||||
| Federal and state income tax assets, net | — | 1,804 | ||||||
| Other assets | 169,179 | 196,494 | ||||||
| $ | 16,188,126 | $ | 15,865,724 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Liabilities | ||||||||
| Customer accounts | ||||||||
| Transaction deposit accounts | $ | 6,744,346 | $ | 6,582,343 | ||||
| Time deposit accounts | 4,817,346 | 4,804,803 | ||||||
| 11,561,692 | 11,387,146 | |||||||
| FHLB advances | 2,540,000 | 2,330,000 | ||||||
| Advance payments by borrowers for taxes and insurance | 21,165 | 57,417 | ||||||
| Federal and state income tax assets, net | 7,388 | — | ||||||
| Accrued expenses and other liabilities | 74,792 | 94,253 | ||||||
| 14,205,037 | 13,868,816 | |||||||
| Stockholders’ equity | ||||||||
|
Common stock, $1.00 par value, 300,000,000 shares authorized; 135,496,280 and 135,343,417 shares issued; 81,123,582 and 82,710,911 shares outstanding |
135,496 | 135,343 | ||||||
| Additional paid-in capital | 1,668,666 | 1,666,609 | ||||||
| Accumulated other comprehensive (loss) income, net of taxes | 2,891 | 8,294 | ||||||
| Treasury stock, at cost; 54,372,698 and 52,632,506 shares | (1,051,239 | ) | (1,002,309 | ) | ||||
| Retained earnings | 1,227,275 | 1,188,971 | ||||||
| 1,983,089 | 1,996,908 | |||||||
| $ | 16,188,126 | $ | 15,865,724 | |||||
| CONSOLIDATED FINANCIAL HIGHLIGHTS | ||||||||
| Common stockholders’ equity per share | $ | 24.45 | $ | 24.14 | ||||
| Tangible common stockholders’ equity per share | 20.61 | 20.38 | ||||||
| Stockholders’ equity to total assets | 12.25 | % | 12.59 | % | ||||
| Tangible common stockholders’ equity to tangible assets | 10.53 | % | 10.84 | % | ||||
| Weighted average rates at period end | ||||||||
| Loans and mortgage-backed securities | 4.28 | % | 4.19 | % | ||||
| Combined loans, mortgage-backed securities and investments | 4.17 | 4.07 | ||||||
| Customer accounts | 0.99 | 0.87 | ||||||
| Borrowings | 2.75 | 2.66 | ||||||
| Combined cost of customer accounts and borrowings | 1.31 | 1.17 | ||||||
| Net interest spread | 2.86 | 2.90 | ||||||
| WASHINGTON FEDERAL, INC. AND SUBSIDIARIES | ||||||||
|
CONSOLIDATED STATEMENTS OF OPERATIONS |
||||||||
|
(UNAUDITED) |
||||||||
| Three Months Ended December 31, | ||||||||
| 2018 | 2017 | |||||||
| (In thousands, except share and ratio data) | ||||||||
| INTEREST INCOME | ||||||||
| Loans receivable | $ | 137,065 | $ | 124,511 | ||||
| Mortgage-backed securities | 19,192 | 16,899 | ||||||
| Investment securities and cash equivalents | 6,365 | 4,370 | ||||||
| 162,622 | 145,780 | |||||||
| INTEREST EXPENSE | ||||||||
| Customer accounts | 26,579 | 14,638 | ||||||
| FHLB advances and other borrowings | 16,891 | 15,407 | ||||||
| 43,470 | 30,045 | |||||||
| Net interest income | 119,152 | 115,735 | ||||||
| Provision (release) for loan losses | (500 | ) | — | |||||
| Net interest income after provision (release) for loan losses | 119,652 | 115,735 | ||||||
| OTHER INCOME | ||||||||
| Gain (loss) on sale of investment securities | (9 | ) | — | |||||
| FDIC loss share valuation adjustments | — | (8,550 | ) | |||||
| Loan fee income | 970 | 1,035 | ||||||
| Deposit fee income | 6,243 | 6,686 | ||||||
| Other Income | 11,805 | 7,624 | ||||||
| 19,009 | 6,795 | |||||||
| OTHER EXPENSE | ||||||||
| Compensation and benefits | 33,883 | 29,619 | ||||||
| Occupancy | 9,268 | 8,671 | ||||||
| FDIC insurance premiums | 2,862 | 2,820 | ||||||
| Product delivery | 4,021 | 3,956 | ||||||
| Information technology | 9,040 | 7,929 | ||||||
| Other | 12,598 | 8,946 | ||||||
| 71,672 | 61,941 | |||||||
| Gain (loss) on real estate owned, net | 320 | 46 | ||||||
| Income before income taxes | 67,309 | 60,635 | ||||||
| Income tax provision | 14,367 | 8,965 | ||||||
| NET INCOME | $ | 52,942 | $ | 51,670 | ||||
| PER SHARE DATA | ||||||||
| Basic earnings per share | $ | 0.65 | $ | 0.59 | ||||
| Diluted earnings per share | 0.65 | 0.59 | ||||||
| Cash dividends per share | 0.18 | 0.15 | ||||||
| Basic weighted average shares outstanding | 81,791,852 | 86,938,095 | ||||||
| Diluted weighted average shares outstanding | 81,831,478 | 87,082,499 | ||||||
| PERFORMANCE RATIOS | ||||||||
| Return on average assets | 1.32 | % | 1.35 | % | ||||
| Return on average common equity | 10.64 | 10.25 | ||||||
| Net interest margin | 3.21 | 3.26 | ||||||
| Efficiency ratio | 51.88 | 47.25 | ||||||
Contacts
Washington Federal, Inc.
425 Pike Street, Seattle, WA 98101
Brad
Goode, SVP, Director of Communications
206-626-8178
brad.goode@wafd.com