Business context and reporting period
Washington Federal, Inc. (WAFD) is a bank holding company operating WaFd Bank, with 234 branches across eight states as of September 30, 2019. Its core business is taking deposits and making residential, construction, commercial real estate and business loans. This is a fiscal-year 2019 Form 10-K for the year ended September 30, 2019, not a standalone fourth-quarter report.
The filing incorporates its audited financial statements and management discussion from the 2019 Annual Report, but those statements are not included in the supplied text. Accordingly, annual net income, net profit, operating cash flow and full-period cash-flow details are not clear from the provided filing text.
Key financial metrics
| Metric | FY2019 / September 30, 2019 | Comparable period |
|---|---|---|
| Average total assets | $16.364 billion | $15.615 billion in FY2018 |
| Average interest-earning assets | $15.204 billion | $14.459 billion in FY2018 |
| Net interest income | $481.1 million | $472.1 million in FY2018 |
| Net interest margin | 3.16% | 3.27% in FY2018 |
| Yield on interest-earning assets / cost of interest-bearing liabilities | 4.42% / 1.34% | 4.20% / 1.00% in FY2018 |
| Net loans | $11.931 billion | $11.477 billion at September 30, 2018 |
| Deposits | $11.991 billion | $11.387 billion at September 30, 2018 |
| FHLB advances | $2.250 billion outstanding | $2.534 billion average balance in FY2019 |
| Cash and cash equivalents | $419.2 million | — |
| Shareholders’ equity | $2.033 billion at September 30, 2019 | Average equity was $2.011 billion in FY2019 |
| Return on assets / return on equity | 1.28% / 10.46% | 1.31% / 10.16% in FY2018 |
| Allowance for loan losses | $131.5 million | $129.3 million at September 30, 2018 |
| Net charge-offs (recoveries) | $(3.6) million | $(11.1) million in FY2018 |
Material changes versus the prior comparable period
- Net interest income rose $8.9 million, while net interest margin declined 11 basis points. Interest-earning asset yield increased 22 basis points, but funding cost rose 34 basis points, principally reflecting higher deposit rates.
- Net loans increased $453.5 million; deposits increased $603.6 million. Gross loans grew in construction, commercial real estate and commercial and industrial lending. Commercial and industrial loans reached $1.269 billion, up from $1.141 billion.
- Asset quality measures improved: non-accrual loans declined to $33.7 million from $55.7 million; non-performing assets fell to $43.8 million from $70.1 million; and total non-performing assets plus performing restructured loans declined to $160.5 million from $220.8 million.
- ROA decreased 3 basis points, while ROE increased 30 basis points. The dividend payout ratio increased to 30.11% from 27.47%.
- The company repurchased 570,480 shares in the fourth fiscal quarter at an average $34.92 per share.
Outlook, risks and unusual items
- The filing provides no specific earnings or financial guidance. Management’s stated objective is to grow net interest income through interest-rate cycles, while acknowledging that this may not be feasible in every period.
- Interest-rate sensitivity analysis estimated that a 100-basis-point rate increase would raise one-year net interest income by $3.9 million, under stated assumptions; the filing cautions this is a risk-measurement tool, not a forecast. The company reported compliance with its interest-rate-risk policy guidelines.
- A major ongoing regulatory matter is the OCC’s February 2018 Consent Order requiring enhancements to the Bank’s Bank Secrecy Act (BSA) program. The company expected continuing significant compliance costs and stated it did not expect to pursue acquisitions or branch expansion until the program improved. Further regulatory action, restrictions, fines and reputational harm remain risks.
- Key disclosed risks include real-estate and regional economic downturns, credit losses exceeding reserves, interest-rate and LIBOR-transition exposure, deposit retention and funding availability, cybersecurity and operational failures, competition, and regulatory or compliance costs.
- The allowance for loan losses excludes a $6.9 million reserve for unfunded commitments. The company noted $48.3 million of loans under 90 days delinquent but classified as substandard; including them as non-performing would raise the stated combined non-performing-assets and performing-restructured-loans ratio from 0.97% to 1.27%.
- Management reported effective disclosure controls and internal control over financial reporting. Legal proceedings in the ordinary course were described as immaterial in aggregate.
Most important facts for investors to verify
- Review the incorporated annual report for audited net income, diluted EPS, full cash-flow results, balance-sheet liquidity details and regulatory capital ratios; these values are not clearly provided in the supplied text.
- Assess the status, costs and any further regulatory developments related to the OCC BSA Consent Order, including implications for growth plans.
- Examine commercial real estate, construction and commercial lending concentrations, underwriting trends, criticized loans and the adequacy of loan-loss reserves.
- Verify deposit mix, certificate maturities and pricing, FHLB borrowing terms, and the effects of rising or falling interest rates on margins and earnings.
- Confirm the timing and estimated balance-sheet impact of adopting the current expected credit losses (CECL) standard, which the filing said was upcoming.