Washington Federal Announces Quarterly Earnings Per Share Of $0.89

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

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

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

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

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

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

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

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

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

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

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

The Company paid a quarterly dividend on the 4.875% Series A preferred stock on April 15, 2023. On June 2, 2023, the Company paid a regular cash dividend on common stock of $0.25 per share, which represented the 161^st 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

Contacts

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