Washington Federal Reports Quarterly Net Income of $34.1 Million

Marketwired

SEATTLE, WA--(Marketwire -04/12/12)- Washington Federal, Inc. (NASDAQ: WAFD - News), parent company of Washington Federal, today announced earnings of $34,071,000 or $.32 per diluted share for the quarter ended March 31, 2012, compared to $25,824,000 or $.23 per diluted share for the same period one year ago, a 31.9% increase. For the six months ended March 31, 2012, earnings were $67,489,000 or $.63 per diluted share, compared to $50,354,000 or $.45 per diluted share for the six months ended March 31, 2011, a 34.0% increase. The Company's ratio of tangible common equity to tangible assets ended the quarter at 12.41% and continues to be among the best of large regional financial institutions in the U.S.

Chairman, President & CEO Roy M. Whitehead commented, "Operating results continue to build on the pattern of consistent improvement we have seen in the last several quarters. In particular, it is gratifying to see the substantial improvement in the amount of non-performing assets. We are seeing signs of an improving economy throughout our eight western states; however, higher loan demand in our commercial areas has not been enough to offset runoff in the mortgage portfolio. Overall, it was another solid quarter."

Non-performing assets amounted to $286 million or 2.11% of total assets at quarter-end, an $84 million or 22.7% decrease from September 30, 2011. Non-performing assets peaked at $606 million, or 5.60% of total assets, on June 30, 2009 and have since decreased by $320 million or 52.7%. Specifically, non-performing loans decreased from $210 million at the Company's September 30, 2011 fiscal year-end, to $166 million as of March 31, 2012, a 21.0% decrease. Net loan charge-offs increased from $26 million in the quarter ended March 31, 2011 to $29 million in the most recent quarter, an 8.7% increase. Total loan delinquencies were 2.95% as of March 31, 2012, a decrease from the 3.43% at September 30, 2011. Delinquencies on single family mortgage loans, the largest component of the loan portfolio, declined slightly during the quarter to 3.10% from 3.25% September 30, 2011. Real Estate held for sale decreased from $160 million at September 30, 2011 to $120 million at quarter end, a $40 million or 24.9% decrease.

Improving asset quality trends such as lower delinquencies, lower balances of real estate owned and non-performing loans are noted; however, high unemployment and slow overall economic growth resulted in continued low values for real estate throughout the Company's eight state territory. Due to delays in the foreclosure process caused by legal changes in many of our communities, in the quarter the Company charged-down all mortgage loans delinquent more than six months so that book value does not exceed the estimated fair value less selling costs. As a result, net charge-offs increased for the first time in 10 quarters. Consistent with these somewhat mixed credit quality indicators, the Company increased its general loan loss reserve percentage and decreased its specific loan loss reserve. As of March 31, 2012, the general allowance totaled 1.49% of loans subject to the general allowance, an increase of five basis points from the 1.44% as of September 30, 2011. The overall allowance (including the general and specific allowance) to loans decreased from 1.89% as of September 30, 2011 to 1.79% as of March 31, 2012.

Total assets increased by $123.4 million or 0.9% to $13.56 billion at March 31, 2012 from $13.44 billion at September 30, 2011. Specifically, loans and covered loans decreased by $320 million, which was offset by a $424 million increase in investment balances. As of March 31, 2012, the Company's investment portfolio had net unrealized gains of $106 million. During the six months ended March 31, 2012, total non-covered loans outstanding decreased by $260 million from $7.94 billion to $7.68 billion as a result of increased loan prepayments stemming from low interest rates available on 30 year fixed-rate mortgages in the market. The pace of net loan runoff decreased in the 2nd quarter of the year compared to the first quarter as market rates stabilized; however, competition for the Company's primary asset class, single-family mortgage loans, remains strong.

During the quarter, the Company had an average balance of $782 million in cash and cash equivalents invested overnight at a yield of approximately 0.25%. Additionally, during the quarter the Company purchased $250 million of a high quality floating rate investment that is currently yielding 0.90% annually. The Company is maintaining higher than normal amounts of liquidity due to concern for potentially rising interest rates in the future. The period end spread decreased to 3.01% as of March 31, 2012 from 3.07% one year earlier as a result of lower asset yields.

Net interest income for the quarter was $104.6 million, a $3.0 million increase from the same quarter one year ago. Net interest margin was 3.29% for the quarter, compared to 3.26% for the same quarter one year ago and 3.27% for the quarter ended December 31, 2011.

The provision for loan losses decreased from $30.8 million to $18.0 million, for the quarters ended March 31, 2011 and 2012, respectively. Net loss on real estate acquired through foreclosure decreased by $8.0 million to $1.6 million for the current quarter, compared to the same quarter one year ago. Net loss on real estate acquired through foreclosure includes gains and losses on sales, ongoing maintenance expenses and any additional write-downs from lower valuations. Total credit costs, which include the provision for loan losses and net loss on real estate acquired, are shown in the table below for the last ten quarters.

 

                  Quarter    Total Credit              %
                   Ended        Costs     $ Change   Change
               ------------ ------------- --------  -------
                             ($ in thousands)

                 12/31/2009 $      82,470
                  3/31/2010        80,058   (2,412)    -2.9%
                  6/30/2010        51,767  (28,291)   -35.3%
                  9/30/2010        46,089   (5,678)   -11.0%
                 12/31/2010        36,553   (9,536)   -20.7%
                  3/31/2011        40,395    3,842     10.5%
                  6/30/2011        29,171  (11,224)   -27.8%
                  9/30/2011        27,035   (2,136)    -7.3%
                 12/31/2011        21,779   (5,256)   -19.4%
                  3/31/2012        19,582   (2,197)   -10.1%

The Company's efficiency ratio of 33.6% for the quarter remains among the best in the industry. The quarter produced a return on assets of 1.00%, while return on equity amounted to 7.12%.

During the quarter, the Company completed the systems conversion and integration of Western National Bank, which it acquired on December 16, 2011, in a transaction with the FDIC.

On April 4, 2012, Washington Federal, Inc. and South Valley Bancorp, Inc. ("South Valley") announced the signing of a definitive merger agreement. The merger agreement calls for the merger of South Valley with and into the Company, followed by the merger of South Valley's wholly owned subsidiary, South Valley Bank & Trust, into the Company's wholly owned subsidiary, Washington Federal. The aggregate merger consideration consists of shares of Washington Federal, Inc. common stock having a value of approximately $33.7 million, and contingent cash earn-out payments of up to a maximum of approximately $39 million based on collections of a specific pool of South Valley's assets. After consummation of the merger, the combined Company will have 190 offices in eight western states with total assets of approximately $14.4 billion and total deposits of approximately $9.6 billion, based on financial results as of December 31, 2011. The merger is expected to close in the third calendar quarter of 2012, pending the receipt of all requisite regulatory approvals, the approval of South Valley's shareholders and the satisfaction of other customary closing conditions.

On April 20, 2012, the Company will pay a cash dividend of $.08 per share to common stockholders of record on April 6, 2012. This will be the Company's 117th consecutive quarterly cash dividend. During the quarter the Company repurchased 625,200 shares of stock at a weighted average price of $16.00.

Washington Federal, with headquarters in Seattle, Washington, has 166 offices in eight western states.

To find out more about the Company, please visit our website. The Company uses its website to distribute financial and other material information about the Company, which is routinely posted on and accessible at www.washingtonfederal.com.

Important Cautionary Statements
The foregoing information should be read in conjunction with the financial statements, notes and other information contained in the Company's 2011 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 include projections and estimates of loan demand, revenue growth, credit costs, levels of problem assets, earnings, interest rates, regulatory actions or other financial or business items; statements of management's plans, strategies and objectives for future operations, and statements regarding future economic, industry or market conditions or performance. Forward-looking statements of this type speak only as of the date of this press release. The Company cautions against placing undue reliance on forward-looking statements, which reflect its good faith beliefs with respect to future events and are based on information currently available to it as of the date the forward-looking statement is made. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the timing when, or by which, such performance or results will be achieved.

By their nature, forward-looking statements involve inherent risk and uncertainties, which change over time, and actual performance or results, could differ materially from those anticipated by any forward-looking statements. Washington Federal undertakes no obligation to update or revise any forward-looking statement. If Washington Federal does update any forward-looking statement, no inference should be drawn that Washington Federal will make additional updates with respect to that statement or any other forward-looking statements. The following important factors, in addition to those discussed or referenced in Washington Federal's periodic reports filed with the SEC, may cause actual results to differ materially from those contemplated by any forward-looking statements: including, but not limited to, general economic conditions; legislative and regulatory changes, including without limitation the potential effect of the Dodd-Frank Wall Street Reform and Consumer Protection Act and regulations to be promulgated thereunder; monetary fiscal policies of the federal government; changes in tax policies; rates and regulations of federal, state and local tax authorities; changes in interest rates; deposit flows; cost of funds; the level of success of the Company's asset/liability management strategies; demand for loan products; demand for financial services; competition; changes in the quality or composition of the Company's loan and investment portfolios; adequacy of the reserve for loan losses; the level of success in disposing of foreclosed real estate and reducing nonperforming assets; changes in accounting principles; policies or guidelines and other economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and fees, including without limitation the Bank's ability to comply in a timely and satisfactory manner with the requirements of a memorandum of understanding entered into with the OCC.

Notice to South Valley Shareholders
This press release does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. In connection with the proposed merger transaction between the Company and South Valley, a registration statement on Form S-4 will be filed with the SEC by the Company. The registration statement will contain a proxy statement/prospectus to be distributed to the shareholders of South Valley in connection with their vote on the merger. SHAREHOLDERS OF SOUTH VALLEY ARE ENCOURAGED TO READ THE REGISTRATION STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE PROXY STATEMENT/PROSPECTUS THAT WILL BE PART OF THE REGISTRATION STATEMENT, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. The final proxy statement/prospectus will be mailed to shareholders of South Valley. Investors and security holders will be able to obtain the documents free of charge at the SEC's website, www.sec.gov. In addition, documents filed with the SEC by the Company will be available free of charge by accessing our website at www.washingtonfederal.com or by writing the Company at 425 Pike Street, Seattle, WA 98101, Attention: Investor Relations, or by writing South Valley at 803 Main Street, Klamath Falls, OR 97601, Attention: Corporate Secretary.

The directors, executive officers and certain other members of management and employees of the Company may be deemed to be participants in the solicitation of proxies in favor of the merger from the shareholders of South Valley. Information about the directors and executive officers of the Company is included in the proxy statement for its 2011 annual meeting of shareholders, which was filed with the SEC on December 6, 2011. The directors, executive officers and certain other members of management and employees of South Valley may also be deemed to be participants in the solicitation of proxies in favor of the merger from the shareholders of South Valley. Information about the directors and executive officers of South Valley will be included in the proxy statement/prospectus for the merger. Additional information regarding the interests of those participants and other persons who may be deemed participants in the transaction may be obtained by reading the proxy statement/prospectus regarding the proposed merger when it becomes available. Free copies of this document may be obtained as described in the preceding paragraph.

 

                 WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
               CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
                                (UNAUDITED)

                                                 March 31,    September 30,
                                                    2012           2011
                                               -------------  -------------
                                                 (In thousands, except per
                                                        share data)
ASSETS
Cash and cash equivalents                      $     890,347  $     816,002
Available-for-sale securities                      3,687,625      3,255,144
Held-to-maturity securities                           38,707         47,036
Loans receivable, net                              7,676,017      7,935,877
Covered loans, net                                   321,634        382,183
Interest receivable                                   54,119         52,332
Premises and equipment, net                          174,580        166,593
Real estate held for sale                            120,095        159,829
Covered real estate held for sale                     35,809         56,383
FDIC indemnification asset                           100,875        101,634
FHLB stock                                           151,747        151,755
Intangible assets, net                               257,250        256,271
Federal and state income taxes                         4,406              -
Other assets                                          50,897         59,710
                                               -------------  -------------
                                               $  13,564,108  $  13,440,749
                                               =============  =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Customer accounts
  Transaction deposit accounts                 $   2,864,624  $   2,662,188
  Time deposit accounts                            5,933,816      6,003,715
                                               -------------  -------------
                                                   8,798,440      8,665,903
FHLB advances                                      1,960,041      1,962,066
Other borrowings                                     800,000        800,000
Advance payments by borrowers for taxes and
 insurance                                            29,415         39,548
Federal and state income taxes                             -          1,535
Accrued expenses and other liabilities                68,155         65,164
                                               -------------  -------------
                                                  11,656,051     11,534,216
Stockholders' Equity
Common stock, $1.00 par value, 300,000,000
 shares authorized; 129,919,851 and
 129,853,534 shares issued; 106,867,527 and
 108,976,410 shares outstanding                      129,920        129,854
Paid-in capital                                    1,584,803      1,582,843
Accumulated other comprehensive income, net of
 taxes                                                65,183         85,789
Treasury stock, at cost; 23,052,324 and
 20,877,124 shares                                  (298,972)      (268,665)
Retained earnings                                    427,123        376,712
                                               -------------  -------------
                                                   1,908,057      1,906,533
                                               -------------  -------------
                                               $  13,564,108  $  13,440,749
                                               =============  =============
CONSOLIDATED FINANCIAL HIGHLIGHTS
Common stockholders' equity per share          $       17.85  $       17.49
Tangible common stockholders' equity per share         15.45          15.14
Stockholders' equity to total assets                   14.07%         14.18%
Tangible common stockholders' equity to
 tangible assets                                       12.41          12.52
Weighted average rates at period end
  Loans and mortgage-backed securities                  5.23%          5.43%
  Combined loans, mortgage-backed securities
   and investment securities                            4.72           4.97
  Customer accounts                                     0.98           1.14
  Borrowings                                            4.04           4.04
  Combined cost of customer accounts and
   borrowings                                           1.71           1.84
  Interest rate spread                                  3.01           3.13


                 WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF OPERATIONS
                                (UNAUDITED)


                       Quarter Ended March 31,   Six Months Ended March 31,
                     --------------------------  --------------------------
                         2012          2011          2012          2011
                     ------------  ------------  ------------  ------------
                              (In thousands, except per share data)
INTEREST INCOME
Loans & covered
 assets              $    123,772  $    128,634  $    251,251  $    266,550
Mortgage-backed
 securities                28,682        26,163        54,978        49,857
Investment
 securities and cash
 equivalents                2,127         3,742         4,278         7,722
                     ------------  ------------  ------------  ------------
                          154,581       158,539       310,507       324,129

INTEREST EXPENSE
Customer accounts          22,016        29,450        45,965        62,184
FHLB advances and
 other borrowings          27,963        27,534        56,226        55,656
                     ------------  ------------  ------------  ------------
                           49,979        56,984       102,191       117,840
                     ------------  ------------  ------------  ------------

Net interest income       104,602       101,555       208,316       206,289
Provision for loan
 losses                    18,000        30,750        29,209        56,750
                     ------------  ------------  ------------  ------------
Net interest income
 after provision for
 loan losses               86,602        70,805       179,107       149,539

OTHER INCOME
Gain on sale of
 investments                    -         8,147             -         8,147
Other                       5,028         4,364         9,673         8,790
                     ------------  ------------  ------------  ------------
                            5,028        12,511         9,673        16,937

OTHER EXPENSE
Compensation and
 benefits                  20,185        17,824        38,860        35,547
Occupancy                   4,094         3,636         8,025         7,151
FDIC premiums               4,350         5,100         8,543        10,199
Other                       8,183         6,761        15,748        14,703
                     ------------  ------------  ------------  ------------
                           36,812        33,321        71,176        67,600
Loss on real estate
 acquired through
 foreclosure, net          (1,582)       (9,645)      (12,151)      (20,198)
                     ------------  ------------  ------------  ------------
Income before income
 taxes                     53,236        40,350       105,453        78,678
Income taxes
 provision (benefit)       19,165        14,526        37,964        28,324
                     ------------  ------------  ------------  ------------
NET INCOME           $     34,071  $     25,824  $     67,489  $     50,354
                     ============  ============  ============  ============

PER SHARE DATA
Basic earnings       $        .32  $        .23  $        .63  $        .45
Diluted earnings              .32           .23           .63           .45
Cash Dividends per
 share                        .08           .06           .16           .12
Basic weighted
 average number of
 shares outstanding   107,198,829   112,278,823   107,523,686   112,364,935
Diluted weighted
 average number of
 shares outstanding,
 including dilutive
 stock options        107,237,972   112,411,414   107,549,396   112,447,927

PERFORMANCE RATIOS
Return on average
 assets                      1.00%          .77%          .99%          .75%
Return on average
 common equity               7.12%         5.59%         7.07%         5.44%
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