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Washington Federal's (WAFD) Q2 Earnings Beat, Costs Rise

Zacks Equity Research

Washington Federal’s WAFD second-quarter fiscal 2019 (ended Mar 31) earnings came in at 63 cents per share, surpassing the Zacks Consensus Estimate of 61 cents. The figure also reflects year-over-year growth of 10.5%.

Results benefited from a rise in revenues, and decent growth in loan and deposit balances. However, expense growth was an undermining factor.

Net income for the quarter increased 3.7% year over year to $51.1 million.

Revenues Rise, Costs Flare Up

Net revenues for the quarter came in at $132.9 million, up 2.3% from the year-ago quarter. The revenue figure, however, lagged the Zacks Consensus Estimate of $133.4 million.

Net interest income for the quarter was $120.1 million, up 2.4% from the year-earlier quarter. However, net interest margin shrunk 10 basis points (bps) year over year to 3.15%.

Total other income of $12.8 million inched up 1.8% from the prior-year tally. This upside was mainly driven by an increase in other income.

Operating expenses flared up 3.3% from the prior-year quarter to $68 million. Higher compensation and benefit, occupancy and other expenses led to this upswing. Moreover, the company incurred Bank Secrecy Act (BSA)-related costs of nearly $1.2 million in the quarter under review.

Management expects to incur an additional $1 million of non-recurring costs for BSA improvements in third-quarter fiscal 2019.

The company’s efficiency ratio was 51.15%, up from 50.65% recorded 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 10.20%, up from 9.81% witnessed at the end of the prior-year quarter. Return on average assets was 1.24% compared with 1.26% at the end of the year-ago quarter.

Loans & Deposits Rise

As of Mar 31, 2019, net loans receivables amounted to $11.9 billion, up from $11.5 billion recorded as of Sep 30, 2018. Also, customer deposit accounts were $11.7 billion, up from $11.4 billion as of Sep 30, 2018.

Credit Quality: A Mixed Bag

As of Mar 31, 2019, the ratio of non-performing assets to total assets was 0.36%, down 9 bps year over year. Furthermore, the allowance for loan losses and reserve for unfunded commitments were 1.05% of gross loans outstanding, down from 1.06% recorded as of Sep 30, 2018.

However, during the fiscal second quarter, the company recorded provision for loan losses of $0.75 million compared with a benefit of nearly $1 million in the prior-year quarter.

Share Repurchases

During the fiscal second quarter, Washington Federal repurchased 0.7 million shares at average price of $29.65 per share.

Our View

Washington Federal is well poised to grow organically, supported by continued rise in loan balances. Additionally, its solid capital and liquidity position will aid the company’s growth through acquisitions. Nevertheless, persistently rising expenses might keep curbing the company’s 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 carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Release Schedule of Other Banks

Among other banks, FB Financial Corporation FBK is scheduled to release its quarterly results on Apr 23, Community Bank System, Inc. CBU on Apr 22, while Atlantic Capital Bancshares, Inc. ACBI will report earnings on Apr 25.

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Atlantic Capital Bancshares, Inc. (ACBI) : Free Stock Analysis Report
Washington Federal, Inc. (WAFD) : Free Stock Analysis Report
Community Bank System, Inc. (CBU) : Free Stock Analysis Report
FB Financial Corporation (FBK) : Free Stock Analysis Report
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