Washington Federal, Inc. parent company of Washington Federal, announced earnings of $40,361,000 or $0.42 per diluted share for the quarter ended March 31, 2015, compared to $38,657,000 or $0.38 per diluted share for the quarter ended March 31, 2014, an increase of 10.5%. The quarter produced a return on average assets of 1.11% and a return on average equity of 8.29%.
Washington Federal’s footprint in Arizona also continues to grow. Over the past 18 months, as a result of the Bank of America acquisition whereby Washington Federal acquired 13 Bank of America branches, the bank’s has grown to 35 branches across Arizona. In addition, over the past year, Washington Federal has added its first-ever Arizona Regional President in Mike Brown and developed a business banking initiative via the hiring of banking veteran Ben Danner.
Chairman, President & CEO Roy M. Whitehead commented, “It was a good, solid quarter for the Company, with virtually every key measure of performance showing improvement. That enabled us to reward shareholders with more aggressive share repurchases and an 18% increase in the cash dividend during the quarter. Due to improved business conditions in our largest markets, we expect the Company to continue to do well.”
Loans receivable grew by $167 million, or 2.0%, during the quarter to $8.4 billion as of March 31, 2015. The fiscal year to date increase was $273 million or 3.3%. Loan originations for the quarter totaled $691 million, a $281 million or 69% increase over the same quarter of the prior year. Commercial loan originations made up 69% of loan originations for the current quarter. The weighted average interest rate on loans as of March 31, 2015 was 4.61%, which is a decrease from 4.69% as of December 31, 2014. Actual yield earned on loans will be greater than the weighted average rate due to net deferred loan fees and discounts on acquired loans, which are accreted into income over the term of the loans.
Customer deposits also increased during the quarter, by $114 million to $10.7 billion and have held steady since the fiscal year-end on September 30, 2014. The mix of customer deposits has continued to shift. Transaction accounts increased by $244 million or 4.5% during the quarter and now represent 53% of total deposits, compared to 51% as of September 30, 2014. Over the last several years, the Company has focused on growing transaction accounts to lessen sensitivity to rising interest rates.
Due primarily to growth in loans receivable, total assets increased by $116 million this quarter to $14.6 billion. Since the prior fiscal year-end, total assets have decreased by
$145 million or 1.0%, from $14.8 billion at September 30, 2014, primarily driven by a reduction in cash and investments. Available for sale investments have decreased $293 million or 9.6%, and held to maturity investments decreased $68 million or 4.4% from the prior year end. During the quarter, the Company had an average balance of cash equivalents of $481 million invested overnight at a yield of approximately 0.25%. Cash and cash equivalents increased to $675 million as of March 31, 2015.
Net interest income for the quarter was $103.9 million, a $3.2 million or 3.2% increase from the quarter ended March 31, 2014. Net interest income was higher as the mix of carrying assets shifted toward higher yielding loans compared to investments. Reduced interest expense on customer funds was due to more transaction accounts and the continued downward repricing of time deposits. Borrowing costs were $0.8 million or 4.5% lower for the quarter due to prepayment of an FHLB advance last quarter. Net interest margin was 3.10% for the quarter ended March 31, 2015, up from 3.01% for the prior quarter and 3.03% for the quarter ended March 31, 2014. Average earning assets increased $95 million or 0.7% compared to the same quarter of the prior year.
Total non-performing assets, including real estate owned as a result of foreclosure, declined by $11 million during the quarter to $153 million or 1.05% of total assets. This includes the addition of $1 million in non-performing loans and $9 million in real estate owned that were acquired from Horizon Bank in 2010, for which a loss share agreement with the FDIC expired after March 31, 2015. Excluding the one-time reclassification of covered assets, total non-performing assets decreased by 2.8%, from $147 million at September 30, 2014 to $143 million as of March 31, 2015. Total loan delinquencies were 1.20% as of March 31, 2015, a decrease from 1.44% at September 30, 2014 due to credit quality improvements and the inclusion of the covered loans noted above. Delinquencies on single family mortgage loans, the largest component of the loan portfolio, declined during the fiscal year to 1.42% from 1.63% at September 30, 2014.
The provision for loan losses was a reversal of $3.9 million and $4.3 million for the quarters ended March 31, 2015 and 2014, respectively, as a result of the continued improvement in asset quality. Net loan recoveries increased to $3.1 million in the most recent quarter from $1.5 million in the quarter ended March 31, 2014. The Company maintains an allowance for loan losses plus a reserve for unfunded commitments that total $110 million or 1.22% of total gross loans. This compares to $111 million or 1.26% of total gross loans as of December 31, 2014.
Net gain on real estate acquired through foreclosure amounted to $1.5 million during the quarter, as compared to a net gain of $0.3 million for the prior quarter and $0.6 million for the quarter ended March 31, 2014. The Company expects the amount of gain or loss on real estate acquired to continue to fluctuate in future quarters based primarily on the timing of sales and the amount, if any, of gains or losses related to those sales. Net gain or loss on real estate acquired through foreclosure includes gains and losses on sales, ongoing maintenance expenses and any additional valuation adjustments.
The Company’s efficiency ratio was 49.97% for the quarter as compared to 48.50% in the same quarter of the prior year. Total operating expenses increased by $5.3 million or
10.1% for the quarter ended March 31, 2014, largely driven by an increase in employees and branch locations provided by the branch acquisitions of the prior fiscal year and the related costs to service the acquired transaction accounts. Deposit related service fee income increased by $2.0 million as compared to the same quarter of the prior year.
On February 16, 2015, the Company paid a cash dividend of $.13 per share to common stockholders of record on February 2, 2015. This was the Company’s 128th quarterly cash dividend. During the quarter, the Company repurchased 2.5 million shares of stock at a weighted average price of $21.21. For the fiscal year 2015, the Company has repurchased 3.6 million shares of stock at a weighted average price of $21.39 and has further authorization to repurchase an additional 1.4 million shares. The Company has returned 162% of earnings to shareholders for the quarter and 132% for the six months ended March 31, 2015 through the combination of cash dividends and share repurchases. The ratio of tangible common equity to tangible assets was 11.65% as of March 31, 2015.