Washington Federal Announces Quarterly Earnings Per Share Of $0.89

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SEATTLE, July 14, 2023--(BUSINESS WIRE)--Washington Federal, Inc. (Nasdaq: WAFD) (the "Company"), parent company of Washington Federal Bank (the "Bank"), today announced quarterly earnings of $61,775,000 for the quarter ended June 30, 2023, a decrease of 2.4% from $63,295,000 for the quarter ended June 30, 2022. After the effect of dividends on preferred stock, net income available for common shareholders was $0.89 per diluted share for the quarter ended June 30, 2023, compared to $0.91 per diluted share for the quarter ended June 30, 2022, a $0.02 or 2.1% decrease in fully diluted earnings per common share. Return on common shareholders' equity for the quarter ended June 30, 2023 was 11.1% compared to 12.5% for the quarter ended June 30, 2022. Return on assets for the quarter ended June 30, 2023 was 1.1% compared to 1.3% for the same quarter in the prior year.

President and Chief Executive Officer Brent J. Beardall commented, "I am pleased to share that during the quarter we experienced net deposit inflows totaling $259 million, resulting in positive deposit growth for the fiscal year-to-date. This is a continued reflection of the confidence our clients place in WaFd. Net income is only slightly below the same quarter last year, even with the challenging interest rate environment and the turmoil in the banking industry over the last six months and we view the slowing pace of margin contraction to be a positive sign for our future. Specifically, our net interest margin contracted 42 basis points from 3.68% for the month of December 2022 compared with 3.26% for the month of March 2023. Using a consistent comparison, the contraction was only 5 basis points from March compared to 3.21% for the month of June 2023.

"After nine consecutive years of net recoveries, during the last two quarters we have experienced net loan charge-offs. It is clear the rapid rise in interest rates is causing some stress for a limited sub-set of borrowers, but taken in its entirety, credit quality remains a positive differentiator for the Bank. Over 85% of our loans are secured by real estate with an estimated average current loan to value ratio under 45%. While there will likely be further stress for certain segments, we believe the Bank's conservative underwriting will accrue to our long-term benefit.

"While we cannot directly control market forces affecting the valuation of our stock, we can effect change in tangible book value per share. Over the past 12 months, we increased tangible book value per share by $2.92 or 11.8%. As of June 30, 2023, WaFd stock was trading at 7.4 times annualized quarterly earnings, which we believe trades below our intrinsic value. Ultimately, we will need to demonstrate to investors that our margin is sustainable over the long-term. In the meantime, the current environment is shaping up to be a 'reset' for regional banks and we believe we are well positioned to capitalize on disruptions in the market."

Total assets were $22.6 billion as of June 30, 2023, compared to $20.8 billion at September 30, 2022, primarily due to the $1.3 billion, or 7.9%, increase in net loans. In addition, cash increased by $455.7 million while investment securities decreased by $43.9 million.

The Bank's held to maturity ("HTM") investments were $434 million as of June 30, 2023, with a net unrealized loss of $40 million. Although not permitted by U.S. Generally Accepted Accounting Principles ("GAAP"), including these unrealized losses in accumulated other comprehensive income would result in a ratio of shareholder's equity to total assets of 10.44% compared to 10.62%, as reported.

Customer deposits totaled $16.1 billion as of June 30, 2023, an increase of $90.9 million or 0.6% since September 30, 2022. Transaction accounts decreased by $1.4 billion or 11.3% during that period, while time deposits increased $1.5 billion or 45.7%. As of June 30, 2023, 69.8% of the Company’s deposits were held in transaction accounts, down from 79.2% at September 30, 2022. Core deposits, defined as all transaction accounts and time deposits less than $250,000, totaled 89.7% of deposits at June 30, 2023. Uninsured deposits were 25% as of June 30, 2023, a decrease from 27% as of March 31, 2023. Our focus historically has been on growing transaction accounts to lessen sensitivity to rising interest rates and manage interest expense, however, the current rate environment has resulted in increased demand for higher yielding deposits.

Borrowings totaled $3.8 billion as of June 30, 2023, an increase from $2.1 billion at September 30, 2022. The effective weighted average interest rate of borrowings was 3.93% as of June 30, 2023, an increase from 2.02% at September 30, 2022.

The Bank had loan originations of $0.9 billion for the third fiscal quarter of 2023, compared to $2.7 billion of originations in the same quarter one year ago. Offsetting loan originations in each of these quarters were loan repayments of $1.1 billion and $1.7 billion, respectively. In addition to the slowing repayments, which are directly correlated with the rapid rise in interest rates, the Bank has intentionally slowed new loan production to temper net loan growth. Even so, net loans outstanding grew for the quarter due to the funding of construction loans previously originated. Commercial loans represented 63% of all loan originations during the third fiscal quarter of 2023 and consumer loans accounted for the remaining 37%. Commercial loans are preferable as they generally have floating interest rates and shorter durations. The weighted average interest rate on the loan portfolio was 5.11% at June 30, 2023, an increase from 4.25% as of September 30, 2022, due primarily to higher rates on adjustable rate loans as well as higher rates on newly originated loans.

Credit quality continues to be monitored closely which is of particular importance in light of the shifting economic and monetary environment. As of June 30, 2023, non-performing assets increased to $67.0 million, or 0.3% of total assets as result of the deterioration of one large commercial loan. This compares to 0.3% of total assets at June 30, 2022 and 0.2% at September 30, 2022. Delinquent loans were 0.3% of total loans at June 30, 2023, compared to 0.3% at June 30, 2022 and 0.2% at September 30, 2022. The allowance for credit losses (including the reserve for unfunded commitments) totaled $204.6 million as of June 30, 2023, and was 1.03% of gross loans outstanding, as compared to $205.3 million, or 1.06% of gross loans outstanding, at September 30, 2022. Net charge-offs were $10.4 million for the third fiscal quarter of 2023, compared to net recoveries of $0.6 million for the prior year same quarter.

The Bank recorded a $9.0 million provision for credit losses in the third fiscal quarter of 2023, compared to a $1.5 million provision in the same quarter of fiscal 2022. The provision in the quarter ended June 30, 2023 was primarily due to one charge-off, offset by reduced unfunded commitment balances combined with the uncertain economic outlook amid concerns around a possible recession and recent macro-economic events.

The Company paid a quarterly dividend on the 4.875% Series A preferred stock on April 15, 2023. On June 2, 2023, the Company paid a regular cash dividend on common stock of $0.25 per share, which represented the 161st consecutive quarterly cash dividend. During the quarter, the Company repurchased 1,116,649 shares of common stock at a weighted average price of $25.62 per share and has authorization to repurchase 2,559,611 additional shares. Tangible common shareholders' equity per share increased by $2.09, or 8.2%, to $27.58 since September 30, 2022. The ratio of total tangible shareholders' equity to tangible assets was 9.4% as of June 30, 2023.

Net interest income was $168.7 million for the third fiscal quarter of 2023, an increase of $17.0 million or 11.2% from the same quarter in the prior year. The increase in net interest income was primarily due to the $2.0 billion increase in average loans outstanding during the quarter despite a decrease in the interest rate spread of 34 basis points. The decrease in the spread was the result of an increase of 209 basis points in the average rate paid on interest-bearing liabilities outpacing a 174 basis point increase in the average rate earned on interest-earning assets. Net interest margin improved to 3.27% in the third fiscal quarter of 2023 compared to 3.22% for the prior year quarter.

Total other income was $13.8 million for the third fiscal quarter of 2023 compared to $17.6 million in the prior year same quarter. Loan fee income decreased by $0.6 million when compared to the same quarter in the prior year due to a reduction in loan production. In addition, a one-time loss of $0.9 million recorded on our client rate swap program due to the LIBOR rate transition completed this quarter. Other income decreased $2.3 million due to a $2.7 million in unrealized gains on certain equity investments which were recorded in the quarter ended June 30, 2022.

Total other expense was $94.7 million in the third fiscal quarter of 2023, an increase of $7.3 million, or 8.3%, from the prior year's quarter. Compensation and benefits costs increased by $2.4 million, or 5.0%, over the prior year quarter primarily due to annual merit increases and investments in strategic initiatives combined with a reduction in capitalized compensation as loan originations have decreased. FDIC premiums increased by $3.3 million compared to the same period last year. Merger related expenses of $0.5 million were also included in total other expense. Despite these increases, the Company’s efficiency ratio in the third fiscal quarter of 2023 remained stable at 51.9%, compared to 51.6% for the same period one year ago.

Income tax expense totaled $17.7 million for the third fiscal quarter of 2023, as compared to $17.5 million for the prior year same quarter. The effective tax rate for the quarter ended June 30, 2023 was 22.29% compared to 21.70% in the prior year same quarter and 21.23% for the year ended September 30, 2022. The Company’s effective tax rate varies from the statutory rate mainly due to state taxes, tax-exempt income, tax-credit investments and miscellaneous non-deductible expenses.

WaFd Bank is headquartered in Seattle, Washington, and has 199 branches in eight western states. To find out more about WaFd Bank, please visit our website www.wafdbank.com. The Company uses its website to distribute financial and other material information about the Company.

Non-GAAP Financial Measures

The adjusted ratio of shareholders' equity to total assets on June 30, 2023, discussed above, is calculated by deducting the $40 million in unrealized losses on HTM investments from total GAAP equity of $2.4 billion, then dividing the adjusted equity by total assets of $22.6 billion to arrive at 10.44%. The unadjusted ratio as of June 30, 2023, was 10.62%.

Important Cautionary Statements

The foregoing information should be read in conjunction with the financial statements, notes and other information contained in the Company’s 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 or current 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. Words such as "anticipate," "believe," "continue," "expect," "goal," "intend," "should," "strategy," "will," or 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, including the following risks and uncertainties, and those risks and uncertainties more fully discussed under "Risk Factors" in the Company’s September 30, 2022 10-K, and Quarterly Reports on Form 10-Q which could cause actual performance to differ materially from that anticipated by any forward-looking statements. In particular, any forward-looking statements are subject to risks and uncertainties related to (i) current and future economic conditions, including the effects of declines in the real estate market, high unemployment rates, inflationary pressures, a potential recession, and slowdowns in economic growth; (ii) fluctuations in interest rate risk and market interest rates, including the effect on our net interest income and net interest margin, (iii) financial stress on borrowers (consumers and businesses) as a result of higher interest rates or an uncertain economic environment; (iv) changes in deposit flows or loan demands; (v) the effect of COVID-19 and other infectious illness outbreaks that may arise in the future and the resulting governmental and societal responses; (vi) global economic trends, including developments related to Ukraine and Russia, and related negative financial impacts on our borrowers; (vii) risks related to the proposed merger with Luther Burbank Corporation; (viii) our ability to identify and address cyber-security risks, including security breaches, "denial of service attacks," "hacking" and identity theft; and (ix) other economic, competitive, governmental, regulatory, and technological factors affecting our operations, pricing, products and services. The Company undertakes no obligation to update or revise any forward-looking statement.

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)

June 30, 2023

September 30, 2022

(In thousands, except share and ratio data)

ASSETS

Cash and cash equivalents

$

1,139,643

$

683,965

Available-for-sale securities, at fair value

2,036,233

2,051,037

Held-to-maturity securities, at amortized cost

434,172

463,299

Loans receivable, net of allowance for loan losses of $178,069 and $172,808

17,384,188

16,113,564

Interest receivable

81,931

63,872

Premises and equipment, net

237,339

243,062

Real estate owned

8,371

6,667

FHLB and FRB stock

130,875

95,073

Bank owned life insurance

241,351

237,931

Intangible assets, including goodwill of $303,457 and $303,457

309,069

309,009

Other assets

549,416

504,652

$

22,552,588

$

20,772,131

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities

Transaction deposits

$

11,256,575

$

12,691,527

Time deposits

4,863,849

3,338,043

Total customer deposits

16,120,424

16,029,570

Borrowings

3,750,000

2,125,000

Advance payments by borrowers for taxes and insurance

33,516

50,051

Federal and state income tax liabilities, net

1,091

3,306

Accrued expenses and other liabilities

253,491

289,944

20,158,522

18,497,871

Shareholders’ equity

Preferred stock, $1.00 par value, 5,000,000 shares authorized; 300,000 and 300,000 shares issued; 300,000 and 300,000 shares outstanding

300,000

300,000

Common stock, $1.00 par value, 300,000,000 shares authorized; 136,457,717 and 136,270,886 shares issued; 64,721,190 and 65,330,126 shares outstanding

136,458

136,271

Additional paid-in capital

1,685,587

1,686,975

Accumulated other comprehensive income (loss), net of taxes

47,351

52,481

Treasury stock, at cost; 71,736,527 and 70,940,760 shares

(1,612,494

)

(1,590,207

)

Retained earnings

1,837,164

1,688,740

2,394,066

2,274,260

$

22,552,588

$

20,772,131

CONSOLIDATED FINANCIAL HIGHLIGHTS

Common shareholders' equity per share

$

32.36

$

30.22

Tangible common shareholders' equity per share

27.58

25.49

Shareholders' equity to total assets

10.62

%

10.95

%

Tangible shareholders' equity to tangible assets

9.37

%

9.60

%

Tangible shareholders' equity + allowance for credit losses to tangible assets

10.17

%

10.45

%

Weighted average rates at period end

Loans

5.11

%

4.25

%

Loans and mortgage-backed securities

4.97

4.13

Combined loans, mortgage-backed securities and investments

4.74

4.04

Customer accounts

1.82

0.51

Borrowings

3.93

2.02

Combined cost of customer accounts and borrowings

2.22

0.68

Net interest spread

2.72

3.36

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(UNAUDITED)

As of

SUMMARY FINANCIAL DATA

June 30,
2023

March 31,
2023

December 31,
2022

September 30,
2022

June 30,
2022

(In thousands, except share and ratio data)

Cash

$

1,139,643

$

1,118,544

$

645,862

$

683,965

$

607,421

Loans receivable, net

17,384,188

17,271,906

16,993,588

16,113,564

15,565,165

Allowance for credit losses ("ACL")

204,569

205,920

208,297

205,308

203,479

Available-for-sale securities, at fair value

2,036,233

2,006,286

2,059,837

2,051,037

2,150,732

Held-to-maturity securities, at amortized cost

434,172

445,222

453,443

463,299

477,884

Total assets

22,552,588

22,325,211

21,653,811

20,772,131

20,158,831

Transaction deposits

11,256,575

11,880,343

12,547,832

12,691,527

12,668,251

Time deposits

4,863,849

3,980,605

3,412,203

3,338,043

3,297,369

Borrowings

3,750,000

3,800,000

3,075,000

2,125,000

1,700,000

Total shareholders' equity

2,394,066

2,375,117

2,324,381

2,274,260

2,220,111

FINANCIAL HIGHLIGHTS

Common shareholders' equity per share

32.36

31.54

30.96

30.22

29.39

Tangible common shareholders' equity per share

27.58

26.85

26.24

25.49

24.66

Shareholders' equity to total assets

10.62

%

10.64

%

10.73

%

10.95

%

11.01

%

Tangible shareholders' equity to tangible assets

9.37

%

9.39

%

9.44

%

9.60

%

9.63

%

Tangible shareholders' equity + ACL to tangible assets

10.17

%

10.19

%

10.27

%

10.45

%

10.65

%

Common shares outstanding

64,721,190

65,793,099

65,387,745

65,330,126

65,321,869

Preferred shares outstanding

300,000

300,000

300,000

300,000

300,000

Loans to customer deposits

107.84

%

108.90

%

106.48

%

100.52

%

97.49

%

CREDIT QUALITY

ACL to gross loans

1.0

%

1.0

%

1.0

%

1.1

%

1.1

%

ACL to non-accrual loans

370.09

%

595.04

%

713.83

%

594.51

%

554.76

%

Non-accrual loans to net loans

0.32

%

0.20

%

0.17

%

0.21

%

0.24

%

Non-accrual loans

$

55,276

$

34,606

$

29,180

$

34,534

$

36,679

Non-performing assets to total assets

0.30

%

0.21

%

0.18

%

0.21

%

0.25

%

Non-performing assets

$

67,000

$

46,785

$

38,650

$

44,554

$

50,430

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

Three Months Ended June 30,

Nine Months Ended June 30,

2023

2022

2023

2022

(In thousands, except share and ratio data)

(In thousands, except share and ratio data)

INTEREST INCOME

Loans receivable

$

232,167

$

149,113

$

659,070

$

426,882

Mortgage-backed securities

10,454

8,618

31,489

18,069

Investment securities and cash equivalents

29,859

9,417

70,686

23,475

272,480

167,148

761,245

468,426

INTEREST EXPENSE

Customer accounts

70,062

9,284

153,831

25,970

FHLB advances and other borrowings

33,718

6,118

80,877

21,486

103,780

15,402

234,708

47,456

Net interest income

168,700

151,746

526,537

420,970

Provision (release) for credit losses

9,000

1,500

15,000

1,500

Net interest income after provision (release)

159,700

150,246

511,537

419,470

OTHER INCOME

Gain (loss) on sale of investment securities

—

—

—

81

Gain (loss) on hedging derivatives

(926

)

—

(900

)

—

Prepayment penalty on long-term debt

—

—

—

—

Loan fee income

1,000

1,618

3,154

6,014

Deposit fee income

6,660

6,613

19,201

19,338

Other income

7,037

9,319

16,412

26,457

13,771

17,550

37,867

51,890

OTHER EXPENSE

Compensation and benefits

50,456

48,073

150,970

142,613

Occupancy

10,444

10,053

31,464

31,931

FDIC insurance premiums

5,350

2,100

13,025

7,300

Product delivery

5,217

4,667

15,154

14,432

Information technology

11,661

11,831

36,775

34,974

Other expense

11,571

10,679

36,470

34,183

94,699

87,403

283,858

265,433

Gain (loss) on real estate owned, net

722

448

411

1,139

Income before income taxes

79,494

80,841

265,957

207,066

Income tax provision

17,719

17,546

58,739

44,131

Net income

61,775

63,295

207,218

162,935

Dividends on preferred stock

3,656

3,656

10,969

10,969

Net income available to common shareholders

$

58,119

$

59,639

$

196,249

$

151,966

PER SHARE DATA

Basic earnings per common share

$

0.89

$

0.91

$

3.00

$

2.33

Diluted earnings per common share

0.89

0.91

3.00

2.32

Cash dividends per common share

0.25

0.24

0.74

0.71

Basic weighted average shares outstanding

65,194,880

65,315,481

65,348,709

65,274,488

Diluted weighted average shares outstanding

65,212,846

65,395,666

65,442,910

65,397,579

PERFORMANCE RATIOS

Return on average assets

1.12

%

1.25

%

1.28

%

1.08

%

Return on average common equity

11.09

12.50

12.72

10.82

Net interest margin

3.27

3.22

3.49

3.00

Efficiency ratio

51.90

51.63

50.29

56.13

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

Three Months Ended

June 30,
2023

March 31,
2023

December 31,
2022

September 30,
2022

June 30,
2022

(In thousands, except share and ratio data)

INTEREST INCOME

Loans receivable

$

232,167

$

222,957

$

203,946

$

174,710

$

149,113

Mortgage-backed securities

10,454

10,422

10,613

8,263

8,618

Investment securities and cash equivalents

29,859

21,967

18,860

14,960

9,417

272,480

255,346

233,419

197,933

167,148

INTEREST EXPENSE

Customer accounts

70,062

52,123

31,646

17,071

9,284

FHLB advances and other borrowings

33,718

28,185

18,974

7,243

6,118

103,780

80,308

50,620

24,314

15,402

Net interest income

168,700

175,038

182,799

173,619

151,746

Provision (release) for credit losses

9,000

3,500

2,500

1,500

1,500

Net interest income after provision (release)

159,700

171,538

180,299

172,119

150,246

OTHER INCOME

Gain (loss) on sale of investment securities

—

—

—

18

—

Gain (loss) on hedging derivatives

(926

)

26

—

—

—

Loan fee income

1,000

652

1,502

1,154

1,618

Deposit fee income

6,660

6,188

6,353

6,604

6,613

Other income

7,037

3,206

6,169

6,706

9,319

13,771

10,072

14,024

14,482

17,550

OTHER EXPENSE

Compensation and benefits

50,456

51,444

49,070

51,304

48,073

Occupancy

10,444

10,918

10,102

10,568

10,053

FDIC insurance premiums

5,350

4,000

3,675

2,231

2,100

Product delivery

5,217

5,316

4,621

5,104

4,667

Information technology

11,661

12,785

12,329

12,228

11,831

Other expense

11,571

12,418

12,481

11,707

10,679

94,699

96,881

92,278

93,142

87,403

Gain (loss) on real estate owned, net

722

(199

)

(112

)

(488

)

448

Income before income taxes

79,494

84,530

101,933

92,971

80,841

Income tax provision

17,719

18,596

22,424

19,576

17,546

Net income

61,775

65,934

79,509

73,395

63,295

Dividends on preferred stock

3,656

3,656

3,656

3,656

3,656

Net income available to common shareholders

$

58,119

$

62,278

$

75,853

$

69,739

$

59,639

PER SHARE DATA

Basic earnings per common share

$

0.89

$

0.95

$

1.16

$

1.07

$

0.91

Diluted earnings per common share

0.89

0.95

1.16

1.07

0.91

Cash dividends per common share

0.25

0.25

0.24

0.24

0.24

Basic weighted average shares outstanding

65,194,880

65,511,131

65,341,974

65,326,706

65,315,481

Diluted weighted average shares outstanding

65,212,846

65,551,185

65,430,690

65,423,817

65,395,666

PERFORMANCE RATIOS

Return on average assets

1.12

%

1.21

%

1.50

%

1.44

%

1.25

%

Return on average common equity

11.09

12.01

15.15

14.22

12.50

Net interest margin

3.27

3.51

3.69

3.64

3.22

Efficiency ratio

51.90

52.34

46.78

49.52

51.63

View source version on businesswire.com: https://www.businesswire.com/news/home/20230714417835/en/

Contacts

Washington Federal, Inc.
425 Pike Street, Seattle, WA 98101
Brad Goode, SVP, Chief Marketing Officer
206-626-8178
brad.goode@wafd.com

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