Washington Federal (WAFD) Beats Q2 Earnings, Costs Decline
Washington Federal Inc. WAFD reported second-quarter fiscal 2017 (ended Mar 31) earnings of 47 cents per share, beating the Zacks Consensus Estimate of 45 cents. The number also represents a year-over-year increase of 4.4%.
Better-than-expected results were primarily driven by an increase in net interest revenue and a fall in operating expenses. Also, balance sheet remained strong during the quarter. However, deteriorating asset quality was a headwind.
Washington Federal’s net income came in at $42.1 million, up marginally from the prior-year quarter.
Higher Revenues and Lower Expenses Support Results
Net revenue was $117.9 million, up marginally year over year. Also, the figure surpassed the Zacks Consensus Estimate of $115.9 million.
Net interest income was $107.7 million, up 1.3% from the year-ago quarter. The primary reason behind the increase was higher average earning assets. However, net interest margin fell 1 basis point (bps) year over year to 3.15%.
Other income declined 5.5% year over year to $10.1 million. The fall was due to a decline in all components of income.
Operating expenses decreased nearly 3% from the prior-year quarter to $57.5 million. The fall was due to lower compensation and benefit, product delivery, information technology and other expenses, partially offset by a rise in occupancy and FDIC insurance premiums.
The company’s efficiency ratio came in at 48.76%, down from 50.60% a year ago. A fall in efficiency ratio indicates improvement in profitability.
At the end of the reported quarter, return on average common equity was 8.37%, down from 8.51% at the end of the prior-year quarter. Return on average assets came in at 1.13% compared with 1.14% in the year-ago quarter.
Credit Quality Deteriorates
As of Mar 31, 2017, the ratio of non-performing assets to total assets was 0.53%, compared with 0.48% as of Sep 30, 2016. Further, the allowance for loan losses and reserve for unfunded commitments was 1.09% of gross loans outstanding, up 2 bps from Sep 30, 2016. The rise reflects the continued shift in the mix of the loan portfolio to include a greater proportion of commercial loans outstanding that generally require higher reserves.
Provision for loan losses was $1.6 million during the reported quarter, up from $1.5 million in the prior-year quarter.
Strong Balance Sheet
As of Mar 31, 2017, net loans receivables were $10.5 billion, up 5.6% from Sep 30, 2016. Also, customer deposit accounts were $10.6 billion, up 0.3% from the Sep 30, 2016 level.
Our View
Washington Federal is well positioned to grow organically supported by a continuous rise in loan balances. Also, its solid capital and liquidity position make it well poised to grow through acquisitions. Further, the company continues to enhance shareholder value through efficient capital deployment activities. However, we remain concerned about the company’s sizeable exposure to risky loan portfolios as well as rising expenses.
Washington Federal, Inc. Price, Consensus and EPS Surprise
Washington Federal, Inc. Price, Consensus and EPS Surprise | Washington Federal, Inc. Quote
Currently, Washington Federal carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among other northeast banks, Fulton Financial Corporation FULT is scheduled to report first-quarter 2017 results on Apr 18. Sandy Spring Bancorp, Inc. SASR and First Bank FRBA are slated to release results on Apr 20 and Apr 24, respectively.
Sell These Stocks Now
Just released, today's 220 Zacks Rank #5 Strong Sells demand urgent attention. If any are lurking in your portfolio or Watch List, they should be removed immediately. These are sinister companies because many appear to be sound investments. However, from 1988 through 2016, stocks from our Strong Sell list have actually performed 6X worse than the S&P 500. See today's Zacks "Strong Sells" absolutely free >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Washington Federal, Inc. (WAFD): Free Stock Analysis Report
Sandy Spring Bancorp, Inc. (SASR): Free Stock Analysis Report
First Bank (FRBA): Free Stock Analysis Report
Fulton Financial Corporation (FULT): Free Stock Analysis Report
To read this article on Zacks.com click here.
