Attached files
file | filename |
---|---|
EX-31.1 - EXHIBIT 31.1 - WASHINGTON FEDERAL INC | wafd10-qex3113312016.htm |
EX-3.1 - EXHIBIT 3.1 - WASHINGTON FEDERAL INC | wafd10-qex313312016.htm |
EX-32 - EXHIBIT 32 - WASHINGTON FEDERAL INC | wafd10-qex323312016.htm |
EX-31.2 - EXHIBIT 31.2 - WASHINGTON FEDERAL INC | wafd10-qex3123312016.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2016
or
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-34654
WASHINGTON FEDERAL, INC.
(Exact name of registrant as specified in its charter)
Washington | 91-1661606 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
425 Pike Street Seattle, Washington 98101 | ||
(Address of principal executive offices and zip code) | ||
(206) 624-7930 | ||
(Registrant’s telephone number, including area code) |
(Former name, former address and former fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | x | Accelerated filer | o |
Non-accelerated filer | o | Smaller reporting company | o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Title of class: | at May 2, 2016 |
Common stock, $1.00 par value | 91,069,431 |
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
The Consolidated Financial Statements of Washington Federal, Inc. and Subsidiaries filed as a part of the report are as follows: | ||||
2
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(UNAUDITED)
March 31, 2016 | September 30, 2015 | ||||||
(In thousands, except share data) | |||||||
ASSETS | |||||||
Cash and cash equivalents | $ | 276,084 | $ | 284,049 | |||
Available-for-sale securities, at fair value | 2,097,086 | 2,380,563 | |||||
Held-to-maturity securities, at amortized cost | 1,558,087 | 1,643,216 | |||||
Loans receivable, net | 9,545,322 | 9,170,634 | |||||
Interest receivable | 37,571 | 40,429 | |||||
Premises and equipment, net | 299,125 | 276,247 | |||||
Real estate owned | 38,770 | 61,098 | |||||
FHLB and FRB stock | 113,187 | 107,198 | |||||
Bank owned life insurance | 204,655 | 102,496 | |||||
Intangible assets, including goodwill of $291,503 | 298,113 | 299,358 | |||||
Federal and state income tax assets, net | 11,544 | 14,513 | |||||
Other assets | 191,279 | 188,523 | |||||
$ | 14,670,823 | $ | 14,568,324 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Liabilities | |||||||
Customer accounts | |||||||
Transaction deposit accounts | $ | 5,876,244 | $ | 5,820,878 | |||
Time deposit accounts | 4,667,140 | 4,810,825 | |||||
10,543,384 | 10,631,703 | ||||||
FHLB advances | 1,980,000 | 1,830,000 | |||||
Advance payments by borrowers for taxes and insurance | 23,863 | 50,224 | |||||
Accrued expenses and other liabilities | 161,116 | 100,718 | |||||
12,708,363 | 12,612,645 | ||||||
Stockholders’ equity | |||||||
Common stock, $1.00 par value, 300,000,000 shares authorized; 134,092,173 and 133,695,803 shares issued; 91,270,241 and 92,936,395 shares outstanding | 134,092 | 133,696 | |||||
Paid-in capital | 1,651,397 | 1,643,712 | |||||
Accumulated other comprehensive (loss) income, net of taxes | (8,586 | ) | 353 | ||||
Treasury stock, at cost; 42,821,932 and 40,759,408 shares | (696,283 | ) | (651,836 | ) | |||
Retained earnings | 881,840 | 829,754 | |||||
1,962,460 | 1,955,679 | ||||||
$ | 14,670,823 | $ | 14,568,324 |
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(In thousands, except share data) | (In thousands, except share data) | ||||||||||||||
INTEREST INCOME | |||||||||||||||
Loans | $ | 113,211 | $ | 109,274 | $ | 226,074 | $ | 217,567 | |||||||
Mortgage-backed securities | 16,846 | 18,143 | 33,833 | 37,318 | |||||||||||
Investment securities and cash equivalents | 5,006 | 5,213 | 10,280 | 11,029 | |||||||||||
135,063 | 132,630 | 270,187 | 265,914 | ||||||||||||
INTEREST EXPENSE | |||||||||||||||
Customer accounts | 13,071 | 12,574 | 25,788 | 26,018 | |||||||||||
FHLB advances and other borrowings | 15,667 | 16,176 | 31,205 | 33,832 | |||||||||||
28,738 | 28,750 | 56,993 | 59,850 | ||||||||||||
Net interest income | 106,325 | 103,880 | 213,194 | 206,064 | |||||||||||
Provision for (release of) allowance for loan losses | (1,500 | ) | (3,949 | ) | (1,500 | ) | (9,449 | ) | |||||||
Net interest income after provision for (release of) allowance for loan losses | 107,825 | 107,829 | 214,694 | 215,513 | |||||||||||
OTHER INCOME | |||||||||||||||
Loan fee income | 1,166 | 2,048 | 2,683 | 4,112 | |||||||||||
Deposit fee income | 5,350 | 5,405 | 11,267 | 11,383 | |||||||||||
Other income | 4,213 | 3,388 | 7,414 | 726 | |||||||||||
10,729 | 10,841 | 21,364 | 16,221 | ||||||||||||
OTHER EXPENSE | |||||||||||||||
Compensation and benefits | 29,184 | 30,469 | 58,883 | 59,629 | |||||||||||
Occupancy | 8,969 | 8,239 | 17,561 | 16,374 | |||||||||||
FDIC insurance premiums | 2,785 | 2,380 | 5,374 | 3,055 | |||||||||||
Product delivery | 4,294 | 5,420 | 9,817 | 11,047 | |||||||||||
Information technology | 7,453 | 3,882 | 16,163 | 7,912 | |||||||||||
Other expense | 6,541 | 6,934 | 15,937 | 12,909 | |||||||||||
59,226 | 57,324 | 123,735 | 110,926 | ||||||||||||
Gain on real estate owned, net | 3,894 | 1,473 | 5,314 | 1,788 | |||||||||||
Income before income taxes | 63,222 | 62,819 | 117,637 | 122,596 | |||||||||||
Income tax expense | 21,499 | 22,458 | 40,816 | 43,828 | |||||||||||
NET INCOME | $ | 41,723 | $ | 40,361 | $ | 76,821 | $ | 78,768 | |||||||
PER SHARE DATA | |||||||||||||||
Basic earnings per share | $ | 0.45 | $ | 0.42 | $ | 0.83 | $ | 0.81 | |||||||
Diluted earnings per share | 0.45 | 0.42 | 0.83 | 0.81 | |||||||||||
Dividends paid on common stock per share | 0.14 | 0.13 | 0.27 | 0.28 | |||||||||||
Basic weighted average number of shares outstanding | 91,777,771 | 96,373,366 | 92,385,367 | 97,270,403 | |||||||||||
Diluted weighted average number of shares outstanding | 92,147,998 | 96,725,234 | 92,860,052 | 97,635,201 |
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(In thousands) | (In thousands) | ||||||||||||||
Net income | $ | 41,723 | $ | 40,361 | $ | 76,821 | $ | 78,768 | |||||||
Other comprehensive income (loss) net of tax: | |||||||||||||||
Net unrealized gain (loss) on available-for-sale securities | 6,916 | 5,063 | (3,445 | ) | 13,623 | ||||||||||
Related tax benefit (expense) | (2,542 | ) | (1,860 | ) | 1,266 | (5,006 | ) | ||||||||
4,374 | 3,203 | (2,179 | ) | 8,617 | |||||||||||
Net unrealized gain (loss) on long-term borrowing hedge | (13,483 | ) | (4,985 | ) | (10,688 | ) | (9,233 | ) | |||||||
Related tax benefit (expense) | 4,955 | 1,832 | 3,928 | 3,393 | |||||||||||
(8,528 | ) | (3,153 | ) | (6,760 | ) | (5,840 | ) | ||||||||
Other comprehensive income (loss) net of tax | (4,154 | ) | 50 | (8,939 | ) | 2,777 | |||||||||
Comprehensive income | $ | 37,569 | $ | 40,411 | $ | 67,882 | $ | 81,545 |
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(in thousands) | Common Stock | Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total | ||||||||||||
Balance at October 1, 2015 | $ | 133,696 | $ | 1,643,712 | $ | 829,754 | $ | 353 | $ | (651,836 | ) | $ | 1,955,679 | |||||
Net income | 76,821 | 76,821 | ||||||||||||||||
Other comprehensive income (loss) | (8,939 | ) | (8,939 | ) | ||||||||||||||
Dividends on common stock | (24,735 | ) | (24,735 | ) | ||||||||||||||
Compensation expense related to common stock options | 600 | 600 | ||||||||||||||||
Proceeds from exercise of common stock options | 250 | 5,149 | 5,399 | |||||||||||||||
Restricted stock expense | 146 | 1,936 | 2,082 | |||||||||||||||
Treasury stock acquired | (44,447 | ) | (44,447 | ) | ||||||||||||||
Balance at March 31, 2016 | $ | 134,092 | $ | 1,651,397 | $ | 881,840 | $ | (8,586 | ) | $ | (696,283 | ) | $ | 1,962,460 | ||||
(in thousands) | Common Stock | Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total | ||||||||||||
Balance at October 1, 2014 | $ | 133,323 | $ | 1,638,211 | $ | 706,149 | $ | 20,708 | $ | (525,108 | ) | $ | 1,973,283 | |||||
Net income | 78,768 | 78,768 | ||||||||||||||||
Other comprehensive income (loss) | 2,777 | 2,777 | ||||||||||||||||
Dividends on common stock | (12,406 | ) | (12,406 | ) | ||||||||||||||
Compensation expense related to common stock options | 600 | 600 | ||||||||||||||||
Proceeds from exercise of common stock options | 35 | 457 | 492 | |||||||||||||||
Restricted stock expense | 265 | 1,716 | 1,981 | |||||||||||||||
Treasury stock acquired | (77,355 | ) | (77,355 | ) | ||||||||||||||
Balance at March 31, 2015 | $ | 133,623 | $ | 1,640,984 | $ | 772,511 | $ | 23,485 | $ | (602,463 | ) | $ | 1,968,140 |
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended March 31, | |||||||
2016 | 2015 | ||||||
(In thousands) | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||
Net income | $ | 76,821 | $ | 78,768 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation, amortization, accretion and restricted stock expense | 11,082 | 10,566 | |||||
Cash received from (paid to) FDIC under loss share | 2,153 | (738 | ) | ||||
Stock option compensation expense | 600 | 600 | |||||
Release of provision for loan losses | (1,500 | ) | (9,449 | ) | |||
Loss (gain) on investment securities and real estate owned | (6,629 | ) | (12,338 | ) | |||
Decrease (increase) in accrued interest receivable | 2,858 | 11,678 | |||||
Decrease (increase) in federal and state income tax receivable | 8,163 | 6,995 | |||||
Decrease (increase) in cash surrender value of bank owned life insurance | (2,159 | ) | (961 | ) | |||
Decrease (increase) in other assets | (5,551 | ) | (26,667 | ) | |||
Increase (decrease) in accrued expenses and other liabilities | 49,710 | 586 | |||||
Net cash provided by operating activities | 135,548 | 59,040 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||
Origination of loans and principal repayments, net | (321,573 | ) | (78,301 | ) | |||
Loans purchased | (51,646 | ) | (146,832 | ) | |||
FHLB & FRB stock purchased | (32,329 | ) | — | ||||
FHLB & FRB stock redemption | 26,340 | 7,921 | |||||
Available-for-sale securities purchased | (50,741 | ) | (163,126 | ) | |||
Principal payments and maturities of available-for-sale securities | 328,188 | 466,991 | |||||
Principal payments and maturities of held-to-maturity securities | 82,536 | 65,913 | |||||
Proceeds from sales of real estate owned | 38,347 | 37,404 | |||||
Purchase of bank owned life insurance | (100,000 | ) | (100,000 | ) | |||
Premises and equipment purchased and REO improvements | (34,248 | ) | (16,897 | ) | |||
Net cash provided by (used in) investing activities | (115,126 | ) | 73,073 | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||
Net increase (decrease) in customer accounts | (88,243 | ) | (24,227 | ) | |||
Proceeds from borrowings | 818,000 | — | |||||
Repayments of borrowings | (668,000 | ) | (100,000 | ) | |||
Proceeds from exercise of common stock options and related tax benefit | 5,399 | 492 | |||||
Dividends paid on common stock | (24,735 | ) | (26,806 | ) | |||
Treasury stock purchased | (44,447 | ) | (77,355 | ) | |||
Increase (decrease) in advance payments by borrowers for taxes and insurance | (26,361 | ) | (10,996 | ) | |||
Net cash provided by (used in) financing activities | (28,387 | ) | (238,892 | ) | |||
Increase (decrease) in cash and cash equivalents | (7,965 | ) | (106,779 | ) | |||
Cash and cash equivalents at beginning of period | 284,049 | 781,843 | |||||
Cash and cash equivalents at end of period | $ | 276,084 | $ | 675,064 |
(CONTINUED)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended March 31, | |||||||
2016 | 2015 | ||||||
(In thousands) | |||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | |||||||
Non-cash investing activities | |||||||
Real estate acquired through foreclosure | $ | 10,535 | $ | 19,927 | |||
Cash paid during the period for | |||||||
Interest | 57,325 | 62,193 | |||||
Income taxes | 27,245 | 32,517 |
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A – Summary of Significant Accounting Policies
Nature of Operations - Washington Federal, Inc. is a Washington corporation headquartered in Seattle, Washington. The Company is a bank holding company that conducts its operations through a federally-insured national bank subsidiary. The Bank is principally engaged in the business of attracting deposits from the general public and investing these funds, together with borrowings and other funds, in one-to-four family residential mortgage and construction loans, home equity loans, lines of credit, commercial and industrial loans, multi-family and other forms of real estate loans. As used throughout this document, the terms "Washington Federal" or the "Company" refer to Washington Federal, Inc. and its consolidated subsidiaries and the term "Bank" refers to the operating subsidiary Washington Federal, National Association.
Basis of Presentation - The consolidated unaudited interim financial statements included in this report have been prepared by Washington Federal. All intercompany transactions and accounts have been eliminated in consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect amounts reported in the financial statements. Actual results could differ from these estimates. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation are reflected in the interim financial statements. The September 30, 2015 Consolidated Statement of Financial Condition was derived from audited financial statements.
The information included in this Form 10-Q should be read in conjunction with the financial statements and related notes in the Company's 2015 Annual Report on Form 10-K (“2015 Form 10-K”). Interim results are not necessarily indicative of results for a full year.
Summary of Significant Accounting Policies - The significant accounting policies used in preparation of the Company's consolidated financial statements are disclosed in its 2015 Form10-K. There have not been any material changes in our significant accounting policies compared to those contained in our 2015 Form 10-K disclosure for the year ended September 30, 2015.
Off-Balance-Sheet Credit Exposures – The only material off-balance-sheet credit exposures are loans in process and unused lines of credit, which had a combined balance of $929,028,000 and $816,014,000 at March 31, 2016 and September 30, 2015, respectively. The Company estimates losses on off-balance-sheet credit exposures by allocating a loss percentage derived from historical loss factors for each asset class.
NOTE B – New Accounting Pronouncements
In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation- Improvements to Employee Share-Based Payment Accounting, which involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Under the guidance, income tax benefits and deficiencies are to be recognized as income tax expense or benefit in the income statement and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity should also recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. Excess tax benefits should be classified along with other income tax cash flows as an operating activity. In regards to forfeitures, the entity may make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures when they occur. This ASU is effective for fiscal years beginning after December 15, 2016 including interim periods within that reporting period, however early adoption is permitted. The Company is currently evaluating the guidance to determine its adoption method and does not expect this guidance to have a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The amendments require lessees to recognize a lease liability, which is a lessee's obligation to make lease payments arising from a lease, and a right-of-use asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. The guidance also simplifies the accounting for sale and leaseback transactions. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach.
9
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company is currently evaluating the provisions of this ASU to determine the potential impact the new standard will have on the Company's consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, to require all equity investments to be measured at fair value with changes in the fair value recognized through net income (other than those accounted for under equity method of accounting or those that result in consolidation of the investee). The amendments in this ASU also require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. This ASU is effective for fiscal years beginning after December 15, 2017 including interim periods within that reporting period. The Company does not expect this guidance to have a material impact on its consolidated financial statements.
In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement-Period Adjustments. the amendments in ASU 2015-16 require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same period’s financial statements, the effect on earnings as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition, an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments in ASU 2015-16 are effective for years beginning after December 15, 2015. Early adoption is permitted for reporting periods for which financial statements have not been issued. The Company does not expect this guidance to have a material impact on its consolidated financial statements.
In April 2015, the FASB issued ASU 2015-05, Customer’s Accounting for Fees Paid in Cloud Computing Arrangement. The ASU was issued to clarify a customer's accounting for fees paid in a cloud computing arrangement. The amendments provide guidance to customers in determining whether a cloud computing arrangement includes a software license that should be accounted for as internal-use software. If the arrangement does not contain a software license, it would be accounted for as a service contract. The guidance in this ASU are effective for interim and annual periods beginning after December 15, 2015 and can be adopted either (1) prospectively to all arrangements entered into or materially modified after the effective date or (2) retrospectively. The Company does not expect this guidance to have a material impact on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The guidance in this update supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance throughout the industry topics of the codification. For public companies, this update was to be effective for interim and annual periods beginning after December 15, 2016. However, in August 2015, the FASB issued ASU 2015-14, which delayed the effective date of ASU 2014-09 by one year and permits companies to voluntarily adopt the new standard as of the original effective date. The Company does not expect this guidance to have a material impact on its consolidated financial statements.
NOTE C – Dividends and Share Repurchases
On February 12, 2016, the Company paid its 132nd consecutive quarterly cash dividend on common stock of $0.14 per share. Dividends per share were $0.14 and $0.13 for the quarters ended March 31, 2016 and 2015, respectively. For the three months ended March 31, 2016, the Company repurchased 1,639,442 shares at an average price of $21.05. For the three months ended March 31, 2015, the Company repurchased 2,500,018 shares at an average price of $21.21. As of March 31, 2016, there are 2,138,706 remaining shares that can be repurchased under the current Board approved program.
10
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE D – Loans Receivable
The following table is a summary of loans receivable (including loans in process, net of charge offs.)
March 31, 2016 | September 30, 2015 | ||||||||||
(In thousands) | (In thousands) | ||||||||||
Non-Acquired loans | |||||||||||
Single-family residential | $ | 5,618,954 | 54.5 | % | $ | 5,651,845 | 57.6 | % | |||
Construction | 785,846 | 7.6 | 200,509 | 2.0 | |||||||
Construction - custom | 398,797 | 3.9 | 396,307 | 4.0 | |||||||
Land - acquisition & development | 101,605 | 1.0 | 94,208 | 1.0 | |||||||
Land - consumer lot loans | 100,856 | 1.0 | 103,989 | 1.1 | |||||||
Multi-family | 1,073,222 | 10.4 | 1,125,722 | 11.6 | |||||||
Commercial real estate | 833,570 | 8.1 | 986,270 | 10.0 | |||||||
Commercial & industrial | 805,272 | 7.8 | 612,836 | 6.2 | |||||||
HELOC | 130,459 | 1.3 | 127,646 | 1.3 | |||||||
Consumer | 164,672 | 1.6 | 194,655 | 2.0 | |||||||
Total non-acquired loans | 10,013,253 | 97.2 | % | 9,493,987 | 96.8 | % | |||||
Acquired loans | 152,572 | 1.5 | 166,293 | 1.6 | |||||||
Credit impaired acquired loans | 106,637 | 1.0 | 87,081 | 0.9 | |||||||
Covered loans | 34,211 | 0.3 | 75,909 | 0.7 | |||||||
Total gross loans | 10,306,673 | 100.0 | % | 9,823,270 | 100.0 | % | |||||
Less: | |||||||||||
Allowance for loan losses | 109,919 | 106,829 | |||||||||
Loans in process | 591,667 | 476,796 | |||||||||
Discount on acquired loans | 21,120 | 30,095 | |||||||||
Deferred net origination fees | 38,645 | 38,916 | |||||||||
Total loan contra accounts | 761,351 | 652,636 | |||||||||
Net Loans | $ | 9,545,322 | $ | 9,170,634 | |||||||
11
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following table sets forth information regarding non-accrual loans.
March 31, 2016 | September 30, 2015 | ||||||||||||
(In thousands) | |||||||||||||
Non-accrual loans: | |||||||||||||
Single-family residential | $ | 42,395 | 77.7 | % | $ | 59,074 | 87.1 | % | |||||
Construction | — | — | 754 | 1.1 | |||||||||
Construction - custom | 67 | 0.1 | 732 | 1.1 | |||||||||
Land - acquisition & development | 477 | 0.9 | — | — | |||||||||
Land - consumer lot loans | 940 | 1.7 | 1,273 | 1.9 | |||||||||
Multi-family | 1,520 | 2.8 | 2,558 | 3.8 | |||||||||
Commercial real estate | 7,701 | 14.1 | 2,176 | 3.2 | |||||||||
Commercial & industrial | 596 | 1.1 | — | — | |||||||||
HELOC | 554 | 1.0 | 563 | 0.8 | |||||||||
Consumer | 309 | 0.6 | 680 | 1.0 | |||||||||
Total non-accrual loans | $ | 54,559 | 100 | % | $ | 67,810 | 100 | % |
The Company recognized interest income on nonaccrual loans of approximately $3,219,000 in the six months ended March 31, 2016. Had these loans performed according to their original contract terms, the Company would have recognized interest income of approximately $1,315,000 for the six months ended March 31, 2016. The recognized interest income includes more than six months of interest for some of the loans that were brought current.
The following tables provide details regarding delinquent loans.
March 31, 2016 | Amount of Loans | Days Delinquent Based on $ Amount of Loans | % based on $ | |||||||||||||||||||||||
Type of Loan | Net of LIP & Chg.-Offs | Current | 30 | 60 | 90 | Total | ||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||
Non-acquired loans | ||||||||||||||||||||||||||
Single-Family Residential | $ | 5,624,134 | $ | 5,558,731 | $ | 18,000 | $ | 7,785 | $ | 39,618 | $ | 65,403 | 1.16 | % | ||||||||||||
Construction | 396,322 | 396,181 | — | — | 141 | 141 | 0.04 | |||||||||||||||||||
Construction - Custom | 212,067 | 209,153 | 1,047 | 1,800 | 67 | 2,914 | 1.37 | |||||||||||||||||||
Land - Acquisition & Development | 92,467 | 90,541 | 1,445 | — | 481 | 1,926 | 2.08 | |||||||||||||||||||
Land - Consumer Lot Loans | 101,372 | 99,379 | 563 | 490 | 940 | 1,993 | 1.97 | |||||||||||||||||||
Multi-Family | 1,077,248 | 1,075,662 | 970 | — | 616 | 1,586 | 0.15 | |||||||||||||||||||
Commercial Real Estate | 889,342 | 881,896 | 1,766 | 53 | 5,627 | 7,446 | 0.84 | |||||||||||||||||||
Commercial & Industrial | 810,452 | 808,825 | 862 | — | 765 | 1,627 | 0.20 | |||||||||||||||||||
HELOC | 130,446 | 129,456 | 378 | 63 | 549 | 990 | 0.76 | |||||||||||||||||||
Consumer | 164,942 | 163,620 | 757 | 207 | 358 | 1,322 | 0.80 | |||||||||||||||||||
9,498,792 | 9,413,444 | 25,788 | 10,398 | 49,162 | 85,348 | 0.90 | ||||||||||||||||||||
Acquired loans | 131,079 | 130,030 | 376 | 2 | 671 | 1,049 | 0.80 | |||||||||||||||||||
Credit impaired acquired loans | 50,924 | 50,604 | — | 44 | 276 | 320 | 0.63 | |||||||||||||||||||
Covered loans | 34,211 | 33,575 | 38 | 2 | 596 | 636 | 1.86 | |||||||||||||||||||
Total Loans | $ | 9,715,006 | $ | 9,627,653 | $ | 26,202 | $ | 10,446 | $ | 50,705 | $ | 87,353 | 0.90 | % | ||||||||||||
Delinquency % | 99.10% | 0.27% | 0.11% | 0.52% | 0.90% |
12
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
September 30, 2015 | Amount of Loans | Days Delinquent Based on $ Amount of Loans | % based on $ | |||||||||||||||||||||||
Type of Loan | Net of LIP & Chg.-Offs | Current | 30 | 60 | 90 | Total | ||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||
Non-acquired loans | ||||||||||||||||||||||||||
Single-Family Residential | $ | 5,655,928 | $ | 5,590,673 | $ | 17,305 | $ | 7,757 | $ | 40,193 | $ | 65,255 | 1.15 | % | ||||||||||||
Construction | 130,121 | 130,121 | — | — | — | — | — | |||||||||||||||||||
Construction - Custom | 205,692 | 204,168 | 791 | 270 | 463 | 1,524 | 0.74 | |||||||||||||||||||
Land - Acquisition & Development | 75,661 | 74,737 | 406 | — | 518 | 924 | 1.22 | |||||||||||||||||||
Land - Consumer Lot Loans | 104,494 | 102,045 | 689 | 399 | 1,361 | 2,449 | 2.34 | |||||||||||||||||||
Multi-Family | 1,068,038 | 1,065,667 | 259 | 454 | 1,658 | 2,371 | 0.22 | |||||||||||||||||||
Commercial Real Estate | 893,072 | 892,180 | 131 | — | 761 | 892 | 0.10 | |||||||||||||||||||
Commercial & Industrial | 617,545 | 616,602 | 93 | 27 | 823 | 943 | 0.15 | |||||||||||||||||||
HELOC | 127,648 | 127,196 | 174 | 27 | 251 | 452 | 0.35 | |||||||||||||||||||
Consumer | 194,977 | 194,259 | 493 | 170 | 55 | 718 | 0.37 | |||||||||||||||||||
9,073,176 | 8,997,648 | 20,341 | 9,104 | 46,083 | 75,528 | 0.83 | ||||||||||||||||||||
Acquired loans | 57,682 | 56,559 | 356 | — | 767 | 1,123 | 1.95 | |||||||||||||||||||
Credit impaired acquired loans | 139,726 | 138,940 | 243 | 4 | 539 | 786 | 0.56 | |||||||||||||||||||
Covered loans | 75,890 | 70,729 | 272 | 90 | 4,799 | 5,161 | 6.80 | |||||||||||||||||||
Total Loans | $ | 9,346,474 | $ | 9,263,876 | $ | 21,212 | $ | 9,198 | $ | 52,188 | $ | 82,598 | 0.88 | % | ||||||||||||
Delinquency % | 99.12% | 0.23% | 0.10% | 0.56% | 0.88% |
The percentage of total delinquent loans increased from 0.88% as of September 30, 2015 to 0.90% as of March 31, 2016 and there are no loans greater than 90 days delinquent and still accruing interest as of either date.
13
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following tables provide information related to loans that were restructured in a troubled debt restructuring ("TDR") during the periods presented:
Three Months Ended March 31, | |||||||||||||||||||||
2016 | 2015 | ||||||||||||||||||||
Pre-Modification | Post-Modification | Pre-Modification | Post-Modification | ||||||||||||||||||
Outstanding | Outstanding | Outstanding | Outstanding | ||||||||||||||||||
Number of | Recorded | Recorded | Number of | Recorded | Recorded | ||||||||||||||||
Contracts | Investment | Investment | Contracts | Investment | Investment | ||||||||||||||||
(In thousands) | (In thousands) | ||||||||||||||||||||
Troubled Debt Restructurings: | |||||||||||||||||||||
Single-family residential | 7 | $ | 1,101 | $ | 1,101 | 14 | $ | 2,664 | $ | 2,664 | |||||||||||
Land - consumer lot loans | — | — | — | 4 | 720 | 720 | |||||||||||||||
Commercial real estate | 3 | 3,175 | 3,175 | ||||||||||||||||||
7 | $ | 1,101 | $ | 1,101 | 21 | $ | 6,559 | $ | 6,559 | ||||||||||||
Six Months Ended March 31, | |||||||||||||||||||||
2016 | 2015 | ||||||||||||||||||||
Pre-Modification | Post-Modification | Pre-Modification | Post-Modification | ||||||||||||||||||
Outstanding | Outstanding | Outstanding | Outstanding | ||||||||||||||||||
Number of | Recorded | Recorded | Number of | Recorded | Recorded | ||||||||||||||||
Contracts | Investment | Investment | Contracts | Investment | Investment | ||||||||||||||||
(In thousands) | (In thousands) | ||||||||||||||||||||
Troubled Debt Restructurings: | |||||||||||||||||||||
Single-family residential | 10 | $ | 1,830 | $ | 1,830 | 49 | $ | 12,264 | $ | 12,264 | |||||||||||
Construction | — | — | — | 2 | 718 | 718 | |||||||||||||||
Land - consumer lot loans | — | — | — | 6 | 1,252 | 1,252 | |||||||||||||||
Commercial real estate | 5 | 965 | 965 | 3 | 3,175 | 3,175 | |||||||||||||||
Consumer | — | — | — | 1 | 85 | 85 | |||||||||||||||
15 | $ | 2,795 | $ | 2,795 | 61 | $ | 17,494 | $ | 17,494 |
The following tables provide information on payment defaults occurring during the periods presented where the loan had been modified in a TDR within 12 months of the payment default.
14
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Three Months Ended March 31, | |||||||||||||
2016 | 2015 | ||||||||||||
Number of | Recorded | Number of | Recorded | ||||||||||
Contracts | Investment | Contracts | Investment | ||||||||||
(In thousands) | (In thousands) | ||||||||||||
TDRs That Subsequently Defaulted: | |||||||||||||
Single-family residential | 6 | $ | 871 | 2 | $ | 304 | |||||||
Land - consumer lot loans | 1 | 146 | 2 | 301 | |||||||||
Commercial real estate | 1 | 152 | — | — | |||||||||
8 | $ | 1,169 | 4 | $ | 605 | ||||||||
Six Months Ended March 31, | |||||||||||||
2016 | 2015 | ||||||||||||
Number of | Recorded | Number of | Recorded | ||||||||||
Contracts | Investment | Contracts | Investment | ||||||||||
(In thousands) | (In thousands) | ||||||||||||
TDRs That Subsequently Defaulted: | |||||||||||||
Single-family residential | 8 | $ | 1,095 | 7 | $ | 1,237 | |||||||
Land - consumer lot loans | 1 | 146 | 3 | 389 | |||||||||
Commercial real estate | 1 | 152 | — | — | |||||||||
10 | $ | 1,393 | 10 | $ | 1,626 |
Most loans restructured in TDR are accruing and performing loans where the borrower has proactively approached the Company about modification due to temporary financial difficulties. As of March 31, 2016, 95.3% of the Company's $270,308,000 in TDRs were classified as performing. Each request is individually evaluated for merit and likelihood of success. The concession for these loans is typically a payment reduction through a rate reduction of between 100 to 200 basis points for a specific term, usually six to twenty four months. Interest-only payments may also be approved during the modification period. Principal forgiveness is not an available option for restructured loans. As of March 31, 2016, single-family residential loans comprised 86.4% of TDRs.
The Company reserves for restructured loans within its allowance for loan loss methodology by taking into account the following performance indicators: 1) time since modification, 2) current payment status and 3) geographic area.
The following table shows the changes in accretable yield for acquired impaired loans and acquired non-impaired loans (including covered loans).
15
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Six Months Ended March 31, 2016 | Year Ended September 30, 2015 | ||||||||||||||||||||||||||||||
Acquired Impaired | Acquired Non-impaired | Acquired Impaired | Acquired Non-impaired | ||||||||||||||||||||||||||||
Accretable Yield | Carrying Amount of Loans | Accretable Yield | Carrying Amount of Loans | Accretable Yield | Carrying Amount of Loans | Accretable Yield | Carrying Amount of Loans | ||||||||||||||||||||||||
(In thousands) | (In thousands) | ||||||||||||||||||||||||||||||
Beginning balance | $ | 72,705 | $ | 111,300 | $ | 7,204 | $ | 187,080 | $ | 97,125 | $ | 135,826 | $ | 14,513 | $ | 275,862 | |||||||||||||||
Additions | — | — | — | — | — | — | — | — | |||||||||||||||||||||||
Net reclassification from nonaccretable | — | — | — | — | 6,307 | — | 346 | — | |||||||||||||||||||||||
Accretion | (11,010 | ) | 11,010 | (1,485 | ) | 1,485 | (30,727 | ) | 30,727 | (7,655 | ) | 7,655 | |||||||||||||||||||
Transfers to REO | — | (123 | ) | — | — | — | (2,975 | ) | — | (150 | ) | ||||||||||||||||||||
Payments received, net | — | (21,039 | ) | — | (17,419 | ) | — | (52,278 | ) | — | (96,287 | ) | |||||||||||||||||||
Ending Balance | $ | 61,695 | $ | 101,148 | $ | 5,719 | $ | 171,146 | $ | 72,705 | $ | 111,300 | $ | 7,204 | $ | 187,080 |
The excess of cash flows expected to be collected over the initial fair value of acquired impaired loans is referred to as the accretable yield and this amount is accreted into interest income over the estimated life of the acquired loans using the effective interest method. Other adjustments to the accretable yield include changes in the estimated remaining life of the acquired loans, changes in expected cash flows and changes in the respective indices for acquired loans with variable interest rates. Acquired loans are included in non-performing assets and subject to the general loss reserving methodology if the purchase discount is no longer sufficient to cover expected losses.
Additionally, as of March 31, 2016 the Company has $1,455,000 remaining in loans it acquired during fiscal 2013 as part of the South Valley Bank acquisition for which it was probable at acquisition that all contractually required payments would not be collected. The timing and amount of future cash flows cannot not be reasonably estimated; therefore, these loans are accounted for on a cash basis.
Covered loans were $34,211,000 at March 31, 2016 compared to $75,909,000 as of September 30, 2015, the decrease being attributable to FDIC loss share coverage on commercial loans from the former Home Valley Bank that expired after September 30, 2015. The FDIC loss share coverage for single family residential loans will continue for another five years. The remaining portfolio of covered loans is expected to continue to decline over time, absent another FDIC assisted transaction.
The following table shows activity for the FDIC indemnification asset:
Six Months Ended March 31, 2016 | Year Ended September 30, 2015 | ||||||
(In thousands) | |||||||
Balance at beginning of period | $ | 16,275 | $ | 36,860 | |||
Additions/Adjustments | — | (1,795 | ) | ||||
Payments received | (2,153 | ) | (720 | ) | |||
Amortization | (773 | ) | (18,588 | ) | |||
Accretion | 131 | 518 | |||||
Balance at end of period | $ | 13,480 | $ | 16,275 |
16
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE E – Allowance for Losses on Loans
The following tables summarize the activity in the allowance for loan losses.
Three Months Ended March 31, 2016 | Beginning Allowance | Charge-offs | Recoveries | Provision & Transfers | Ending Allowance | ||||||||||||||
(In thousands) | |||||||||||||||||||
Single-family residential | $ | 47,756 | $ | (1,026 | ) | $ | 111 | $ | (5,013 | ) | $ | 41,828 | |||||||
Construction | 7,014 | — | (5 | ) | 8,717 | 15,726 | |||||||||||||
Construction - custom | 1,062 | — | — | (40 | ) | 1,022 | |||||||||||||
Land - acquisition & development | 6,778 | — | 3,371 | (2,897 | ) | 7,252 | |||||||||||||
Land - consumer lot loans | 3,001 | (268 | ) | — | (267 | ) | 2,466 | ||||||||||||
Multi-family | 5,047 | — | — | 1,737 | 6,784 | ||||||||||||||
Commercial real estate | 10,344 | (9 | ) | 992 | (3,544 | ) | 7,783 | ||||||||||||
Commercial & industrial | 24,096 | (331 | ) | 590 | (531 | ) | 23,824 | ||||||||||||
HELOC | 820 | (26 | ) | — | 34 | 828 | |||||||||||||
Consumer | 1,983 | (278 | ) | 397 | 304 | 2,406 | |||||||||||||
$ | 107,901 | $ | (1,938 | ) | $ | 5,456 | $ | (1,500 | ) | $ | 109,919 |
Three Months Ended March 31, 2015 | Beginning Allowance | Charge-offs | Recoveries | Provision & Transfers | Ending Allowance | ||||||||||||||
(In thousands) | |||||||||||||||||||
Single-family residential | $ | 55,495 | $ | (1,409 | ) | $ | 4,122 | $ | (3,446 | ) | $ | 54,762 | |||||||
Construction | 5,451 | — | 75 | (81 | ) | 5,445 | |||||||||||||
Construction - custom | 965 | — | — | 3 | 968 | ||||||||||||||
Land - acquisition & development | 6,671 | — | 204 | 530 | 7,405 | ||||||||||||||
Land - consumer lot loans | 3,113 | (52 | ) | 34 | (60 | ) | 3,035 | ||||||||||||
Multi-family | 4,500 | — | — | 173 | 4,673 | ||||||||||||||
Commercial real estate | 5,872 | — | 453 | 409 | 6,734 | ||||||||||||||
Commercial & industrial | 23,328 | (355 | ) | 18 | (1,845 | ) | 21,146 | ||||||||||||
HELOC | 892 | — | — | (42 | ) | 850 | |||||||||||||
Consumer | 2,413 | (701 | ) | 734 | 859 | 3,305 | |||||||||||||
$ | 108,700 | $ | (2,517 | ) | $ | 5,640 | $ | (3,500 | ) | $ | 108,323 |
17
WASHINGTON FEDERAL, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Six Months Ended March 31, 2016 | Beginning Allowance | Charge-offs | Recoveries | Provision & Transfers | Ending Allowance | ||||||||||||||
(In thousands) | |||||||||||||||||||
Single-family residential | $ | 47,347 | $ | (2,165 | ) | $ | 2,577 | $ | (5,931 | ) | $ | 41,828 | |||||||
Construction | 6,680 | — | 150 | 8,896 | 15,726 | ||||||||||||||
Construction - custom | 990 | (60 | ) | — | 92 | 1,022 | |||||||||||||
Land - acquisition & development | 5,781 | — | 3,406 | (1,935 | ) | 7,252 | |||||||||||||
Land - consumer lot loans | 2,946 | (676 | ) | — | 196 | 2,466 | |||||||||||||
Multi-family | 5,304 | — | — | 1,480 | 6,784 | ||||||||||||||
Commercial real estate | 8,960 | (32 | ) | 1,115 | (2,260 | ) | 7,783 | ||||||||||||
Commercial & industrial | 24,980 | (579 | ) | 591 | (1,168 | ) | 23,824 | ||||||||||||
HELOC | 902 | (27 | ) | 21 | (68 | ) | 828 | ||||||||||||
Consumer | 2,939 | (520 | ) | 789 | (802 | ) | 2,406 | ||||||||||||
$ | 106,829 | $ | (4,059 | ) | $ | 8,649 | $ | (1,500 | ) | $ | 109,919 |
Six Months Ended March 31, 2015 | Beginning Allowance | Charge-offs | Recoveries | Provision & Transfers | Ending Allowance | ||||||||||||||
(In thousands) | |||||||||||||||||||
Single-family residential | $ | 62,763 | $ | (3,103 | ) | $ | 6,675 | $ | (11,573 | ) | $ | 54,762 | |||||||
Construction | 6,742 | (388 | ) | 75 | (984 | ) | 5,445 | ||||||||||||
Construction - custom | 1,695 | — | — | (727 | ) | 968 | |||||||||||||
Land - acquisition & development | 5,592 | (38 | ) | 205 | 1,646 | 7,405 | |||||||||||||
Land - consumer lot loans | 3,077 | (87 |