Washington Federal Announces Record Quarterly Earnings Per Share Of $1.16

SEATTLE--(BUSINESS WIRE)--Washington Federal, Inc. (Nasdaq: WAFD) (the "Company"), parent company of Washington Federal Bank ("WaFd Bank"), today announced quarterly earnings of $79,509,000 for the quarter ended December 31, 2022, an increase of 58% from $50,281,000 for the quarter ended December 31, 2021. After the effect of dividends on preferred stock, net income available for common shareholders was $1.16 per diluted share for the quarter ended December 31, 2022, compared to $0.71 per diluted share for the quarter ended December 31, 2021, a $0.45 or 63% increase in fully diluted earnings per common share. Return on common shareholders' equity for the quarter ended December 31, 2022 was 15.15% compared to 10.12% for the quarter ended December 31, 2021. Return on assets for the quarter ended December 31, 2022 was 1.50% compared to 1.02% for the same quarter in the prior year.

Executive Vice President, Chief Consumer Banker and acting Chief Executive Officer Cathy Cooper commented, "The first fiscal quarter of 2023 was a great start to the year. Loan growth was robust, increasing $880 million or 5.5% for the quarter. Credit quality remained strong, with yet another quarter of net recoveries and our allowance for credit losses stands at $208 million. Solid growth in our fundamental business resulted in a 36.3% increase in net interest income over the same quarter last year as the increase in the average rate earned on our interest-earning assets outpaced the increase in the average rate paid on our interest-bearing liabilities.

Our results show that the Bank continues to benefit from rising rates while we hold the line on other expenses, as reflected in our improved efficiency ratio for the quarter, even as we make additional investments in technology enhancements such as voice-authenticated banking and data-driven personalization. It's not surprising that deposit costs are rising and liquidity in the system is tightening, for WaFd and the banking industry, which we view both as important and needed steps for economic stability

On November 13, 2022 we announced the signing of a definitive merger agreement with Luther Burbank Corporation (NASDAQ: LBC, "Luther Burbank"), creating a continuous footprint from Seattle to Austin. We believe our complementary approach to serving the needs of our clients and communities will lead to successful partnership opportunities for growth post-merger.

I'm also gratified to report that Brent Beardall, our President and CEO who is currently on leave, is recovering from multiple injuries he sustained on January 2, 2023. We expect him to soon be discharged from the hospital to focus on rehabilitation. Brent and the entire team at WaFd are grateful for the outpouring of love and support and we are overwhelmed by the response. It truly is a privilege for all of us here at WaFd Bank to continue to press forward on the bank's strategic initiatives, including our proposed acquisition of Luther Burbank, while we await Brent's return to his normal duties."

Total assets were $21.7 billion as of December 31, 2022, compared to $20.8 billion at September 30, 2022, primarily due to continued growth in net loans receivable funded by increased Federal Home Loan Bank ("FHLB") advances. Net loans increased by $880 million, or 5.5%, while FHLB advances increased $950 million, or 44.7%. Investment securities slightly decreased by $1 million during the quarter.

Customer deposits totaled $16.0 billion as of December 31, 2022, a decrease of 0.4% since September 30, 2022. Transaction accounts decreased by $144 million or 1.1% during that period, while time deposits increased $74 million or 2.2%. Our focus historically on growing transaction accounts is intended to lessen sensitivity to rising interest rates and manage interest expense. As of December 31, 2022, 78.6% of the Company's deposits were 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 94.0% of deposits at December 31, 2022.

Borrowings from the FHLB totaled $3.08 billion as of December 31, 2022, up from $2.13 billion at September 30, 2022 driven largely by loan growth and relatively flat customer deposit balances. The effective weighted average interest rate of FHLB borrowings was 3.14% as of December 31, 2022, an increase from 2.02% at September 30, 2022.

The Company had strong loan originations of $2.04 billion for the first fiscal quarter of 2023, comparable to $2.13 billion of originations in the same quarter one year ago. Offsetting loan originations in each of these quarters were loan repayments of $1.23 billion and $1.83 billion, respectively. Commercial loans represented 84% of all loan originations during the first fiscal quarter of 2023 and consumer loans accounted for the remaining 16%. The Company views organic loan growth funded by low-cost core deposits as the highest and best use of its capital. Commercial loans are preferable as they generally have floating interest rates and shorter durations. The weighted average interest rate on the loan portfolio was 4.73% as of December 31, 2022, an increase from 4.25% as of September 30, 2022, due primarily to higher rates on adjustable rate loans and newly originated loans.

Credit quality is being monitored closely in light of the shifting economic and monetary environment. As of December 31, 2022, non-performing assets remained low from a historical perspective and totaled $38.7 million, or 0.18% of total assets, down from $44.6 million, or 0.21%, at September 30, 2022. The change fiscal year to date is due primarily to non-accrual loans decreasing by $5.4 million, or 16%, since September 30, 2022. Delinquent loans decreased to 0.16% of total loans at December 31, 2022, compared to 0.17% at September 30, 2022. The allowance for credit losses (including the reserve for unfunded commitments) totaled $208 million as of December 31, 2022, and was 1.03% of gross loans outstanding, as compared to $205 million, or 1.06% of gross loans outstanding, at September 30, 2022. Net recoveries were $0.5 million for the first fiscal quarter of 2023, compared to net recoveries of $2.1 million for the prior year same quarter. The Company has recorded net recoveries for nine consecutive years.

The Company recorded a $2.5 million provision for credit losses in the first fiscal quarter of 2023, compared to a provision for credit losses of $0.5 million in the same quarter of fiscal 2022. The provision for loan losses in the quarter ended December 31, 2022 was primarily due to growth in loans receivable largely offset by continued strong credit performance and collateral protection.

The Company paid a quarterly dividend on Series A preferred stock on October 15, 2022. On December 2, 2022, the Company paid a regular cash dividend on common stock of $0.24 per share, which represented the 159^th consecutive quarterly cash dividend. Tangible common shareholders' equity per share increased by $0.75, or 2.9%, to $26.24 since September 30, 2022. The ratio of total tangible shareholders' equity to tangible assets was 9.44% as of December 31, 2022.

Net interest income was $183 million for the first fiscal quarter of 2023, an increase of $48.7 million or 36.3% from the same quarter in the prior year. The increase in net interest income was primarily due to an increase in the interest rate spread of 63 basis points. This was the result of the increase of 149 basis points in the average rate earned on interest-earning assets outpacing the 86 basis point increase in the average rate paid on interest-bearing liabilities. Net interest margin was 3.69% in the first fiscal quarter of 2023 compared to 3.64% for the quarter ended September 30, 2022 and 2.87% for the prior year quarter. This increase in net interest margin is directly attributable to both increasing market interest rates and the intentional shift over the last several years towards transaction deposits and commercial loans.

Total other income was $14.0 million for the first fiscal quarter of 2023 compared to $18.7 million in the prior year same quarter. The decrease in other income was primarily due to unrealized gains for certain equity investments of $5.1 million which were recorded in the quarter ended December 31, 2021. There was no similar gain in the quarter ended December 31, 2022.

Total other expense was $92.3 million in the first fiscal quarter of 2023, an increase of $2.7 million, or 3.0%, from the prior year's quarter. Compensation and benefits costs increased by $1.6 million, or 3.5%, over the prior year quarter primarily due to annual merit increases and investments in top talent and strategic initiatives. The Company's efficiency ratio in the first fiscal quarter of 2023 was 46.8%, compared to 58.6% for the same period one year ago due to income growth outpacing expense growth.

Income tax expense totaled $22.4 million for the first fiscal quarter of 2023, as compared to $13.0 million for the prior year same quarter. The effective tax rate for the quarter ended December 31, 2022 was 22.00% compared to 21.23% for the year ended September 30, 2022. The Company's effective tax rate may vary from the statutory rate mainly due to state taxes, tax-exempt income and tax-credit investments.

WaFd Bank is headquartered in Seattle, Washington, and has 200 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.

Important Cautionary Statements

The foregoing information should be read in conjunction with the financial statements, notes and other information contained in the Company's 2022 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, 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) the effect of COVID-19 and other infectious illness outbreaks that may arise in the future and the resulting governmental and societal responses; (ii) current and future economic conditions, including the effects of declines in the real estate market, high unemployment rates, inflationary pressures, and slowdowns in economic growth; (iii) financial stress on borrowers (consumers and businesses) as a result of higher interest rates or an uncertain economic environment; (iv) global economic trends, including developments related to Ukraine and Russia, and related negative financial impacts on our borrowers; (v) fluctuations in interest rate risk and market interest rates, including the effect on our net interest income and net interest margin; (vi) risks related to the proposed merger with Luther Burbank; and (vii) our ability to identify and address cyber-security risks, including security breaches, "denial of service attacks," "hacking" and identity theft. The Company undertakes no obligation to update or revise any forward-looking statement.

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
	December 31, 2022				September 30, 2022
	(In thousands, except share and ratio data)
ASSETS
Cash and cash equivalents	$	645,862			$	683,965
Available-for-sale securities, at fair value		2,059,837				2,051,037
Held-to-maturity securities, at amortized cost		453,443				463,299
Loans receivable, net of allowance for loan losses of $176,797 and $172,808		16,993,588				16,113,564
Interest receivable		75,316				63,872
Premises and equipment, net		240,360				243,062
Real estate owned		6,117				6,667
FHLB and FRB stock		133,073				95,073
Bank owned life insurance		238,370				237,931
Intangible assets, including goodwill of $303,457 and $303,457		308,767				309,009
Other assets		499,078				504,652
	$	21,653,811			$	20,772,131
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Transaction deposits	$	12,547,832			$	12,691,527
Time deposits		3,412,203				3,338,043
Total customer deposits		15,960,035				16,029,570
FHLB advances		3,075,000				2,125,000
Advance payments by borrowers for taxes and insurance		17,626				50,051
Federal and state income tax liabilities, net		16,995				3,306
Accrued expenses and other liabilities		259,774				289,944
		19,329,430				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; 136,373,350 and 136,270,886 shares issued; 65,387,745 and 65,330,126 shares outstanding		136,373				136,271
Additional paid-in capital		1,689,209				1,686,975
Accumulated other comprehensive income (loss), net of taxes		41,726				52,481
Treasury stock, at cost; 70,985,605 and 70,940,760 shares		(1,591,935	)			(1,590,207	)
Retained earnings		1,749,008				1,688,740
		2,324,381				2,274,260
	$	21,653,811			$	20,772,131
CONSOLIDATED FINANCIAL HIGHLIGHTS
Common shareholders' equity per share	$	30.96			$	30.22
Tangible common shareholders' equity per share		26.24				25.49
Shareholders' equity to total assets		10.73	%			10.95	%
Tangible shareholders' equity to tangible assets		9.44	%			9.60	%
Tangible shareholders' equity + allowance for credit losses to tangible assets		10.27	%			10.45	%
Weighted average rates at period end
Loans and mortgage-backed securities		4.59	%			4.13	%
Combined loans, mortgage-backed securities and investments		4.46				4.04
Customer accounts		0.94				0.51
Borrowings		3.14				2.02
Combined cost of customer accounts and borrowings		1.29				0.68
Net interest spread		3.17				3.36

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
	As of
SUMMARY FINANCIAL DATA	December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021
	(In thousands, except share and ratio data)
Cash	$	645,862			$	683,965			$	607,421			$	1,947,504			$	1,880,647
Loans receivable, net		16,993,588				16,113,564				15,565,165				15,094,926				14,592,202
Allowance for credit losses ("ACL")		208,297				205,308				203,479				201,384				201,411
Available-for-sale securities, at fair value		2,059,837				2,051,037				2,150,732				1,909,605				1,946,139
Held-to-maturity securities, at amortized cost		453,443				463,299				477,884				301,221				326,387
Total assets		21,653,811				20,772,131				20,158,831				20,560,279				19,973,171
Transaction deposits		12,547,832				12,691,527				12,668,251				13,139,606				12,550,062
Time deposits		3,412,203				3,338,043				3,297,369				3,251,042				3,351,984
FHLB advances		3,075,000				2,125,000				1,700,000				1,720,000				1,720,000
Total shareholders' equity		2,324,381				2,274,260				2,220,111				2,191,701				2,149,126
FINANCIAL HIGHLIGHTS
Common shareholders' equity per share		30.96				30.22				29.39				28.97				28.33
Tangible common shareholders' equity per share		26.24				25.49				24.66				24.23				23.59
Shareholders' equity to total assets		10.73	%			10.95	%			11.01	%			10.66	%			10.76	%
Tangible shareholders' equity to tangible assets		9.44	%			9.60	%			9.63	%			9.29	%			9.35	%
Tangible shareholders' equity + ACL to tangible assets		10.27	%			10.45	%			10.65	%			10.29	%			10.38	%
Common shares outstanding		65,387,745				65,330,126				65,321,869				65,306,928				65,263,738
Preferred shares outstanding		300,000				300,000				300,000				300,000				300,000
Loans to customer deposits		106.48	%			100.52	%			97.49	%			92.09	%			91.76	%
CREDIT QUALITY
ACL to gross loans		1.03	%			1.06	%			1.08	%			1.13	%			1.18	%
ACL to non-accrual loans		713.83	%			594.51	%			554.76	%			598.66	%			447.99	%
Non-accrual loans to net loans		0.17	%			0.21	%			0.24	%			0.22	%			0.31	%
Non-accrual loans		29,180				34,534				36,679				33,639				44,959
Non-performing assets to total assets		0.18	%			0.21	%			0.25	%			0.23	%			0.27	%
Non-performing assets		38,650				44,554				50,430				47,243				54,790

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
	Three Months Ended December 31,
	2022				2021
	(In thousands, except share and ratio data)
INTEREST INCOME
Loans receivable	$	203,946			$	138,509
Mortgage-backed securities		10,613				4,792
Investment securities and cash equivalents		18,860				7,139
		233,419				150,440
INTEREST EXPENSE
Customer accounts		31,646				8,461
FHLB advances and other borrowings		18,974				7,843
		50,620				16,304
Net interest income		182,799				134,136
Provision (release) for credit losses		2,500				500
Net interest income after provision (release)		180,299				133,636
OTHER INCOME
Gain (loss) on sale of investment securities		-				81
Loan fee income		1,502				1,921
Deposit fee income		6,353				6,443
Other Income		6,169				10,236
		14,024				18,681
OTHER EXPENSE
Compensation and benefits		49,070				47,425
Occupancy		10,102				10,090
FDIC insurance premiums		3,675				3,100
Product delivery		4,621				4,721
Information technology		12,329				11,421
Other		12,481				12,856
		92,278				89,613
Gain (loss) on real estate owned, net		(112	)			562
Income before income taxes		101,933				63,266
Income tax provision		22,424				12,985
Net income		79,509				50,281
Dividends on preferred stock		3,656				3,656
Net income available to common shareholders	$	75,853			$	46,625
PER SHARE DATA
Basic earnings per common share	$	1.16			$	0.72
Diluted earnings per common share		1.16				0.71
Cash dividends per common share		0.24				0.23
Basic weighted average shares outstanding		65,341,974				65,207,837
Diluted weighted average shares outstanding		65,430,690				65,350,174
PERFORMANCE RATIOS
Return on average assets		1.50	%			1.02	%
Return on average common equity		15.15				10.12
Net interest margin		3.69				2.87
Efficiency ratio		46.78				58.64

WASHINGTON FEDERAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
	Three Months Ended
	December 31, 2022				September 30, 2022				June 30, 2022				March 31, 2022				December 31, 2021
	(In thousands, except share and ratio data)
INTEREST INCOME
Loans receivable	$	203,946			$	174,710			$	149,113			$	139,260			$	138,509
Mortgage-backed securities		10,613				8,263				8,618				4,659				4,792
Investment securities and cash equivalents		18,860				14,960				9,417				6,919				7,139
		233,419				197,933				167,148				150,838				150,440
INTEREST EXPENSE
Customer accounts		31,646				17,071				9,284				8,225				8,461
FHLB advances and other borrowings		18,974				7,243				6,118				7,525				7,843
		50,620				24,314				15,402				15,750				16,304
Net interest income		182,799				173,619				151,746				135,088				134,136
Provision (release) for credit losses		2,500				1,500				1,500				(500	)			500
Net interest income after provision (release)		180,299				172,119				150,246				135,588				133,636
OTHER INCOME
Gain (loss) on sale of investment securities		-				18				-				-				81
Loan fee income		1,502				1,154				1,618				2,475				1,921
Deposit fee income		6,353				6,604				6,613				6,282				6,443
Other income		6,169				6,706				9,319				6,902				10,236
		14,024				14,482				17,550				15,659				18,681
OTHER EXPENSE
Compensation and benefits		49,070				51,304				48,073				47,115				47,425
Occupancy		10,102				10,568				10,053				11,788				10,090
FDIC insurance premiums		3,675				2,231				2,100				2,100				3,100
Product delivery		4,621				5,104				4,667				5,044				4,721
Information technology		12,329				12,228				11,831				11,722				11,421
Other expense		12,481				11,707				10,679				10,648				12,856
		92,278				93,142				87,403				88,417				89,613
Gain (loss) on real estate owned, net		(112	)			(488	)			448				129				562
Income before income taxes		101,933				92,971				80,841				62,959				63,266
Income tax provision		22,424				19,576				17,546				13,600				12,985
Net income		79,509				73,395				63,295				49,359				50,281
Dividends on preferred stock		3,656				3,656				3,656				3,656				3,656
Net income available to common shareholders	$	75,853			$	69,739			$	59,639			$	45,703			$	46,625
PER SHARE DATA
Basic earnings per common share	$	1.16			$	1.07			$	0.91			$	0.70			$	0.72
Diluted earnings per common share		1.16				1.07				0.91				0.70				0.71
Cash dividends per common share		0.24				0.24				0.24				0.24				0.23
Basic weighted average shares outstanding		65,341,974				65,326,706				65,315,481				65,301,171				65,207,837
Diluted weighted average shares outstanding		65,430,690				65,423,817				65,395,666				65,445,206				65,350,174
PERFORMANCE RATIOS
Return on average assets		1.50	%			1.44	%			1.25	%			0.98	%			1.02	%
Return on average common equity		15.15				14.22				12.50				9.80				10.12
Net interest margin		3.69				3.64				3.22				2.90				2.87
Efficiency ratio		46.78				49.52				51.63				58.65				58.64

Contacts

Washington Federal, Inc.
425 Pike Street, Seattle, WA 98101
Brad Goode, SVP, Chief Marketing Officer
206-626-8178
[e-mail]