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/
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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