Washington Federal (WAFD) Q3 Earnings Top on Higher Revenues

Washington Federal Inc. WAFD announced third-quarter fiscal 2018 (ended Jun 30) earnings of 61 cents per share, which surpassed the Zacks Consensus Estimate of 59 cents. Also, the figure reflects year-over-year growth of 24.5%.

Results benefited from a rise in net interest income and decent loan and deposit growth. However, lower total other income, increase in operating expenses and higher provision for loan losses were the undermining factors.

Net income was $51.4 million, up 16.5% from the prior-year quarter.

Loan Growth, Higher Rates Aid Revenues, Expenses Rise

Net revenues came in at $132.3 million, up 8% from the year-ago quarter. Also, the figure topped the Zacks Consensus Estimate of $131.7 million.  

Net interest income was $120 million, up 10.3% from the year-ago quarter.

Also, net interest margin rose 16 basis points (bps) year over year to 3.29%. The increase was mainly driven by changes in the mix of interest earning assets, higher yields on variable rate loans, cash and investments as well as a lower rate on FHLB advances.

Total other income declined 10.6% year over year to $12.5 million. The decrease was mainly due to absence of gains recognized on bank owned life insurance.

Operating expenses increased 17.4% from the prior-year quarter to $67 million. The rise was largely due to higher information technology costs. Moreover, the company incurred Bank Secrecy Act (BSA) related costs of nearly $4.9 million in the reported quarter.

Management expects to incur an additional $10 million of non-recurring costs for BSA improvements over the next four quarters. Thereafter, BSA costs are expected to be roughly $2 million per quarter.

The company’s efficiency ratio was 50.62%, up from 46.57% a year ago. A rise in efficiency ratio indicates deterioration in profitability.

At the end of the reported quarter, return on average common equity was 10.30%, up from 8.70% at the end of the prior-year quarter. Return on average assets was 1.31% compared with 1.17% in the year-ago quarter.

Loans & Deposits Rise

As of Jun 30, 2018, net loans receivables were $11.3 billion, up from $10.9 billion recorded as of Sep 30, 2017. Also, customer deposit accounts were $11.3 billion, up from $10.8 billion as of Sep 30, 2017.

Improvement in Credit Quality

As of Jun 30, 2018, the ratio of non-performing assets to total assets was 0.46%, down 4 bps year over year. Further, the allowance for loan losses and reserve for unfunded commitments were 1.06% of gross loans outstanding, down 1 bp from the Sep 30, 2017 level.

However, provision for loan losses was $1 million compared with no provisions in the prior-year quarter.

Share Repurchases

During the reported quarter, Washington Federal repurchased 1.2 million shares at an average price of $32.64 per share. Moreover, as of Jun 30, 2018, the company had roughly 2.9 million shares left under repurchase authorization.

Other Development

On Jul 17, Washington Federal Anchor Bancorp ANCB mutually agreed to terminate the acquisition deal announced in April 2017.

Our View

Washington Federal is well positioned to grow organically, supported by the continued rise in loan balances. Also, its solid capital and liquidity position make it well poised to grow through acquisitions. However, persistently rising expenses might hurt bottom-line growth.

Washington Federal, Inc. Price, Consensus and EPS Surprise

 

Washington Federal, Inc. Price, Consensus and EPS Surprise | Washington Federal, Inc. Quote

Currently, Washington Federal has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Release Dates for Other Banks

Among other banks in the same space, Community Bank System, Inc. CBU and Valley National Bancorp VLY are scheduled to release quarterly results on Jul 23 and Jul 26, respectively.

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