Washington Federal (NASDAQ: WFSL) is a savings and loan company that operates commercial banking operations in the United States. Its subsidiary, Washington Federal Savings Bank, operates in the state of Washington. In the wake of the 2008 financial crisis, Washington Federal faces unfamiliar challenges as the credit market remains uncertain and the Dodd-Frank Act changes the financial sector.
In 2010, net income increased 192% to $118.7 million from $40.7 million in 2009. While increased loan volumes increased revenues, the primary drivers of profitability in 2010 were gains from an acquisition of Horizon and tax credits; the profit from both were about equal to the $78 million net income increase.
WFSL's primary source of revenue is its lending practice - like any commercial bank, Washington Federal pays customers interest on their deposits so that it can lend out their money at a higher rate. The net interest margin metric acts as proxy for the bank's ability to earn interest on its assets. In the midst of credit market uncertainty following the 2008 financial crisis, the company's ability to lend profitably may be reduced and its net interest margin may decrease.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, the government's response to the 2008 Financial crisis, significantly impacts the way the financial sector operates. Its allowance for government support of institutions identified as "too big to fail" may increase the value of identified financial institutions while decreasing the prospects and equity value of smaller financial institutions like Washington Federal. In addition, the Act increases financial regulation which may restrict Washington Federal's operations and increase back office expenses related to compliance.
Washington Federal competes with other commercial banks in Washington including competing regional banks and national competitors:
Washington Federal and its competitors increase revenues and income by increasing their deposit and loan volume. The industry is competitive as companies increase their deposit interest rates while decreasing their loan rates and fees to attract customers.