WAFD Inc. (Washington Federal) — FY2015 Form 10-K
Reporting period: Fiscal year ended September 30, 2015. Washington Federal is a bank holding company operating through Washington Federal, National Association, with 247 branches across eight western and southwestern states. Its business is primarily deposit-taking and real-estate-focused lending.
Financial performance and condition
- Net interest income: $413.5 million, up $7.9 million from $405.6 million in FY2014. Net interest margin rose to 3.08% from 3.05%; average earning-asset yield declined 6 basis points while funding costs declined 10 basis points.
- Profitability: Return on assets was 1.10%, unchanged from FY2014; return on equity increased to 8.21% from 7.99%. The supplied filing text does not provide a clear net income, total revenue, or net income per share value.
- Loans: Net loans were $9.17 billion at year-end, up $845.8 million (about 10%) from $8.32 billion. Gross loans were $9.82 billion. Single-family residential loans were 57.8% of gross loans; commercial real estate and multifamily loans were 11.7% and 11.6%, respectively.
- Credit quality: Nonperforming assets were $128.6 million, or 0.88% of total assets, versus $147.3 million, or 1.00%, in FY2014. Total nonperforming assets plus restructured loans were 2.87% of assets, down from 3.37%. The allowance for loan losses was $106.8 million; the year recorded $5.4 million in net recoveries and a $10.7 million reversal of the loan-loss provision.
- Deposits and borrowings: Deposits totaled $10.63 billion, down $85.2 million during FY2015, compared with a $1.63 billion increase in FY2014 that included acquired deposits. FHLB advances were about $1.8 billion; customer repurchase agreements were $56.3 million. No short-term borrowings were outstanding at year-end.
- Investments and liquidity: The investment portfolio had a fair value of $4.02 billion, compared with $4.55 billion a year earlier. Cash flow statement amounts and a clear year-end cash balance are not included in the supplied text.
- Capital and shareholder returns: Average equity was $1.95 billion and average equity to average assets was 13.42%, compared with 13.80% in FY2014. The Bank exceeded regulatory “well-capitalized” requirements; specific capital ratios are not included in the supplied text. The company repurchased 5.84 million shares at a weighted average price of $21.70. The dividend payout ratio was 32.14%, versus 26.45%.
Changes versus FY2014
- Loan balances and originations grew: originations were $3.10 billion versus $2.17 billion in FY2014. Commercial real estate, commercial and industrial, and construction lending contributed to portfolio growth.
- Net interest income increased despite a $3.1 million decline in total interest income, as interest expense fell by $11.0 million. Net interest margin improved modestly.
- Credit measures improved, including lower nonperforming assets and net recoveries. The provision reversal was smaller than in FY2014, when the company recorded a $15.8 million reversal.
- Deposits declined slightly, whereas FY2014 deposit growth included $1.85 billion acquired in the Bank of America branch transactions.
Outlook, risks, and notable items
- No quantitative earnings or growth guidance is provided. Management said loan-loss provisions could remain at historically elevated levels until nonperforming assets and charge-offs improve further and economic conditions strengthen.
- Interest-rate exposure is material: the company had a negative one-year repricing gap of 13.40% of assets. Its model estimated that a 100-basis-point rate increase would reduce one-year net income by $0.4 million and a 200-basis-point increase by $9.3 million, assuming no balance-sheet growth or mix changes. These are sensitivity estimates, not forecasts.
- Key risks include regional economic and real estate downturns, concentration in real-estate lending, interest-rate and funding risks, regulatory changes and compliance costs, and operational, cybersecurity, and technology-migration risks. The Bank was completing a multiyear transition to a new core operating system.
- The Bank disclosed a CFPB consent order relating to HMDA data reporting and a $34,000 civil penalty from 2013; it said it had adopted an enhanced compliance program and believed it was complying with the order’s material terms.
- Management reported that ordinary-course legal proceedings were not material to the financial statements. The supplied text does not identify a material litigation contingency.
Important facts for investors to verify
- Review the incorporated financial statements and annual report for net income, total revenue, earnings per share, cash flows, year-end cash and full regulatory capital ratios, which are not clear in the supplied filing text.
- Assess loan growth and changing commercial real estate, multifamily, and commercial lending exposures alongside collateral values, underwriting, and the allowance for loan losses.
- Examine deposit trends and certificate maturities, including the retention and pricing of large certificates, and the Bank’s reliance on FHLB advances.
- Compare actual results with the disclosed interest-rate sensitivity and evaluate the potential effects of rising rates on funding costs, margins, and loan demand.
- Track core-system conversion progress, cybersecurity controls, and continued compliance with the CFPB consent order.