SOURCE: Washington Federal Savings

Washington Federal Savings

October 22, 2009 08:30 ET

Washington Federal Reports Quarterly Net Income of $9.6 Million and $40.7 Million for Its Fiscal Year

SEATTLE, WA--(Marketwire - October 22, 2009) - Washington Federal, Inc. (NASDAQ: WFSL), parent company of Washington Federal Savings, today announced earnings of $9,605,000 or $.11 per diluted share for the quarter ended September 30, 2009. In the same quarter one year ago, the Company reported a loss of $39,337,000 or $.45 per diluted share due to a writedown of $88 million on preferred stock investments in the U.S. Government sponsored entities of Fannie Mae and Freddie Mac. Earnings for the fiscal year ended September 30, 2009 totaled $40,684,000 or $.46 per diluted share, compared to $62,332,000 or $.71 per diluted share for the same period one year ago.

Recession related credit costs and rising FDIC insurance premiums were the primary contributors to the decline in net income of $21,648,000, or 35%, for the full year. The provision for loan losses amounted to $193 million for the year ended September 30, 2009, a $132.5 million increase over the $60.5 million provided for during the prior year. Additionally, FDIC insurance premiums increased by $9.9 million.

In September, the Company completed a follow-on public offering of 24,150,000 shares of common stock. The offering produced net proceeds of $333,177,000 which will be used for general corporate purposes, which may include capital to support future acquisitions. As of September 30, 2009, the Company's ratio of tangible common equity to tangible assets was 12.08%, and its total risk-based capital ratio was 21.57%. Both of these ratios are significantly above regulatory requirements to be classified as well capitalized.

Chairman, President & CEO Roy M. Whitehead commented, "The past year was an extraordinarily difficult time for the industry, marked by nearly unprecedented levels of problem real estate loans. Despite our own high level of troubled assets, we are very gratified to be one of the few financial institutions in the Pacific Northwest to have been solidly profitable. Declining deposit costs contributed significantly to strong core earnings during the year. Perhaps more notably, after nearly three years of consistent increases, this quarter we were able to record a decline in non-performing assets. This is a welcome and encouraging development; however, investors are advised to expect problem assets and credit costs to continue at an elevated level in the new fiscal year. With roughly $500 million in cash equivalents and a capital ratio more than twice the required regulatory minimum, management and the board of the Company feel that Washington Federal is well-positioned to be an industry leader in the new fiscal year."

Non-performing assets declined to $557 million, or 4.43%, of total assets at year-end from $606 million at June 30th, a decrease of $49 million. Compared to September 30, 2008, non-performing assets increased $393 million or 240%. This increase was concentrated in the Company's portfolio of land and speculative construction loans. The net balance of the land and construction portfolio was $593 million, or 6.6% of net loans at September 30th. In response to deteriorating credit conditions, the Company increased its allowance for loan losses from $85 million as of September 30, 2008, to $167 million as of September 30, 2009, an $82 million or 96% increase.

Overall delinquencies were 4.86% as of September 30, 2009, compared to 5.69% for the previous quarter ended June 30, 2009. Delinquencies as of September 30, 2008 were 2.46%. Single family residential mortgage loans, which represent 75% of the net total portfolio, experienced delinquencies of only 2.91%, which compares favorably to the national average mortgage delinquencies of 9.24%(i).

Much of the decline in delinquent loans can be attributed to the migration of troubled loans to Real Estate Owned (REO) due to foreclosures, along with the restructuring of troubled debts. Troubled Debts Restructured (TDR's) increased from $68.3 Million at June 30th to $136.9 Million at September 30th. The increase is due primarily to the restructuring of one large builder/developer relationship and heavy mortgage loan modification volume. At quarter-end, the Company owned 398 properties acquired through, or in lieu of, foreclosure, of which 87 have sales pending. During the quarter, the Company completed the sale of 121 REO properties.

Total assets increased by $752 million or 6% to $12.6 billion from $11.8 billion at September 30, 2008. Specifically, investment securities increased by $704 million or 44% during year, as the Company purchased agency mortgage backed securities in anticipation of a potential increase in refinance activity. As of September 30, 2009, the Company's investment portfolio had net unrealized gains of $90 million, an increase of $87 million from September 30, 2008. During the year, net loans outstanding decreased from $9.5 billion to $9.0 billion as a result of increased loan prepayments stemming from record low interest rates available on 30 year fixed-rate mortgages. Cash and cash equivalents increased by $416 million as the Company built its liquidity position from its equity offering and deposit growth.

Customer deposit accounts increased by $673 million, or 9.4%, and borrowings decreased by $296 million during the year as the Company repaid all of its short term borrowings due to growth in customer deposits and reduced loan demand.

Net interest income increased by 23% or $69 million from the previous year, benefiting from falling deposit costs. The Company's period end spread increased to 3.17% as of September 30, 2009, compared to 2.85% one year ago. In the next quarter the Company has $2.9 billion of deposits that will mature with a weighted average rate of 2.30%.

The Company's efficiency ratio of 27.3% for the year, a slight increase from 27.2% from one year ago, remains among the lowest in the industry. The year produced a return on assets of .33%, while return on equity amounted to 2.87%. These ratios represent historical lows for the Company attributable to reduced earnings caused by significant declines in real estate values throughout the western United States.

On October 23, 2009, Washington Federal will pay a cash dividend of $.05 per share to common stockholders of record on October 9, 2009. This will be the Company's 107th consecutive quarterly cash dividend.

Washington Federal Savings, with headquarters in Seattle, Washington, has 150 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 2008 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

Financial information contained in this release should be considered to be an estimate until the Company files its fiscal 2009 Annual Report on Form 10-K with the Securities and Exchange Commission. While the Company is not aware of any need to revise the results disclosed in this release, accounting literature may require adverse information received by management on troubled assets between the date of this release and the filing of the Form 10-K to be reflected in the results of fiscal 2009, even though the new information was received by management in fiscal 2010 subsequent to the date of this release.

Statements contained herein that are not historical facts should be considered forward-looking statements with respect to Washington Federal. Forward-looking statements of this type speak only as of the date of this report. By nature, forward-looking statements involve inherent risk and uncertainties. Various factors, including, but not limited to, unforeseen local, regional, national or global events, economic conditions, asset quality, interest rates, loan demand, changes in business or consumer spending, borrowing or savings habits, deposit growth, adequacy of the reserve for loan losses, competition, stock price volatility, government monetary and economic policy, anticipated expense levels, changes in laws and regulations, the level of success of the company's asset/liability management strategies as well as its marketing, product development, sales and other strategies, the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies as well as the Financial Accounting Standards Board and other accounting standard setters, the costs and effects of litigation and of unexpected or adverse outcomes in such litigation, and changes in the assumptions used in making the forward-looking statements, could cause actual results to differ materially from those contemplated by the forward-looking statements. Washington Federal undertakes no obligation to update or revise forward-looking statements to reflect subsequent circumstances, events or information or for any other reason.

(i) Source: Mortgage statistics as reported by Bloomberg, ticker DLQTDLQT as of 6/30/09

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


                                    September 30, 2009  September 30, 2008
                                    ------------------  ------------------
                                    (In thousands, except per share data)
ASSETS
Cash and cash equivalents           $          498,388  $           82,600
Available-for-sale securities                2,201,083           1,476,067
Held-to-maturity securities                    103,042             124,537
Loans receivable, net                        8,983,430           9,501,620
Interest receivable                             53,288              54,365
Premises and equipment, net                    133,477             133,357
Real estate held for sale                      176,863              37,107
FHLB stock                                     144,495             144,874
Intangible assets, net                         256,797             260,158
Other assets                                    31,612              15,456
                                    ------------------  ------------------
                                    $       12,582,475  $       11,830,141
                                    ==================  ==================

LIABILITIES AND STOCKHOLDERS'
 EQUITY
Liabilities
Customer accounts
  Savings and demand accounts       $        7,786,467  $        7,146,045
  Repurchase agreements with
   customers                                    55,843              23,494
                                    ------------------  ------------------
                                             7,842,310           7,169,539
FHLB advances                                2,078,930           1,998,308
Other borrowings                               800,600           1,177,600
Advance payments by borrowers for
 taxes and insurance                            38,376              37,206
Federal and state income taxes                  18,075              33,716
Accrued expenses and other
 liabilities                                    58,699              81,098
                                    ------------------  ------------------
                                            10,836,990          10,497,467
Stockholders' equity
Common stock, $1.00 par value,
 300,000,000 shares authorized;
 129,320,072 and 105,092,724
 shares issued; 112,247,748 and
 87,916,286 shares outstanding                 129,320             105,093
Paid-in capital                              1,574,555           1,261,032
Accumulated other comprehensive
 income (loss), net of taxes                    54,431               2,472
Treasury stock, at cost; 17,072,324
 and 17,176,438 shares                        (208,985)           (210,250)
Retained earnings                              196,164             174,327
                                    ------------------  ------------------
                                             1,745,485           1,332,674
                                    ------------------  ------------------
                                    $       12,582,475  $       11,830,141
                                    ==================  ==================
CONSOLIDATED FINANCIAL HIGHLIGHTS
Common stockholders' equity per
 share                              $            15.55  $            15.16
Tangible common stockholders'
 equity per share                                13.26               12.20
Stockholders' equity to total
 assets                                          13.87%              11.27%
Tangible common stockholders'
 equity to tangible assets                       12.08                9.27
Weighted average rates at period
 end
  Loans and mortgage-backed
   securities                                     6.04%               6.33%
  Combined loans, mortgage-backed
   securities and investment
   securities                                     5.75                6.26
  Customer accounts                               1.96                3.25
  Borrowings                                      4.25                3.77
  Combined cost of customer
   accounts and borrowings                        2.58                3.41
  Interest rate spread                            3.17                2.85
* Includes municipal bonds at tax equivalent yields and cash equivalents



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


                                                    Twelve Months
             Quarter Ended September 30,         Ended September 30,
            ------------------------------  ------------------------------
                 2009            2008            2009            2008
            --------------  --------------  --------------  --------------
                        (In thousands, except per share data)
INTEREST
 INCOME
Loans       $      138,767  $      153,175  $      579,244  $      599,878
Mortgage-
 backed
 securities         27,914          22,238         109,486          88,425
Investment
 securities
 and cash
 equivalents           585           2,090           3,044          13,125
            --------------  --------------  --------------  --------------
                   167,266         177,503         691,774         701,428

INTEREST
 EXPENSE
Customer
 accounts           40,340          59,528         191,435         259,769
FHLB
 advances
 and other
 borrowings         31,527          33,718         127,192         137,872
            --------------  --------------  --------------  --------------
                    71,867          93,246         318,627         397,641
            --------------  --------------  --------------  --------------

Net
 interest
 income             95,399          84,257         373,147         303,787
Provision
 for loan
 losses             51,800          36,800         193,000          60,516
            --------------  --------------  --------------  --------------
Net
 interest
 income
 after
 provision
 for loan
 losses             43,599          47,457         180,147         243,271

OTHER
 INCOME
Gain on
 sale of
 loans                   -              83               -             517
Gain on
 sale of
 real
 estate                  -               -               -          13,123
Gain on
 sale of
 investments
 (Other
 than
 temporary
 impairment)           104         (87,747)          1,063         (87,747)
Other                4,997           3,586          17,946          14,916
            --------------  --------------  --------------  --------------
                     5,101         (84,078)         19,009         (59,191)

OTHER
 EXPENSE
Compensation
 and fringe
 benefits           13,932          14,580          57,097          52,832
Occupancy            3,301           3,221          13,049          11,213
FDIC
 insurance           2,445             279          10,688             792
Other                6,801           6,419          26,226          22,383
            --------------  --------------  --------------  --------------
                    26,479          24,499         107,060          87,220
Gain (loss)
 on real
 estate
 acquired
 through
 foreclosure,
 net                (8,609)           (840)        (16,354)         (1,021)
            --------------  --------------  --------------  --------------
Income
 (loss)
 before
 income
 taxes              13,612         (61,960)         75,742          95,839
Income
 taxes               4,007         (22,623)         27,570          33,507
            --------------  --------------  --------------  --------------
NET INCOME
 (LOSS)              9,605         (39,337)         48,172          62,332
            --------------  --------------  --------------  --------------
Preferred
 dividends
 accrued                 -               -           7,488               -
            --------------  --------------  --------------  --------------
NET INCOME
 (LOSS)
 AVAILABLE
 TO COMMON
 SHARE-
 HOLDERS    $        9,605  $      (39,337) $       40,684  $       62,332
            ==============  ==============  ==============  ==============

PER SHARE
 DATA
Basic
 earnings
 (loss)     $          .11  $        (0.45) $          .46  $          .71
Diluted
 earnings
 (loss)                .11           (0.45)            .46             .71
Cash
 Dividends
 per share             .05             .21             .20             .84
Basic
 weighted
 average
 number of
 shares
 outstanding    90,701,391      87,843,753      88,689,553      87,675,978
Diluted
 weighted
 average
 number of
 shares
 outstanding,
 including
 dilutive
 stock
 options        90,752,105      87,961,784      88,711,694      87,818,580

PERFORMANCE
 RATIOS
Return on
 average
 assets                .31%         - 1.33%            .33%            .55%
Return on
 average
 common
 equity               2.57%        - 11.52%           2.87%           4.59%