Washington Federal Inc. (NASDAQ:WAFD) reported third-quarter fiscal 2017 (ended Jun 30) earnings of 49 cents per share, beating the Zacks Consensus Estimate by a penny. The number also reflects a year-over-year increase of 4.3%.
Better-than-expected results were primarily driven by an increase in net interest revenues and a jump in non-interest income. Also, the balance sheet remained strong during the quarter. However, higher operating expenses were a headwind.
Washington Federal’s net income came in at $44.1 million, up 2.6% from the prior-year quarter.
Higher Revenues Offset by Rise in Expenses
Net revenue was $122.5 million, up 6.8% year over year. Also, the figure surpassed the Zacks Consensus Estimate of $120.3 million.
Net interest income was $108.6 million, up 4.2% from the year-ago quarter. The primary reason for the increase was higher average earning assets. Also, net interest margin increased 6 basis point (bps) year over year to 3.13%.
Other income jumped 32.8% year over year to $13.9 million. The rise was driven by increase in other revenues.
Operating expenses rose 1.3% from the prior-year quarter to $57.1 million. The rise was due to higher compensation and benefit, occupancy costs and other expenses.
The company’s efficiency ratio came in at 46.57%, down from 49.08% 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 8.70%, down from 8.71% at the end of the prior-year quarter. Return on average assets was 1.17% compared with 1.16% in the year-ago quarter.
Credit Quality: A Mixed Bag
As of Jun 30, 2017, the ratio of non-performing assets to total assets was 0.50% compared with 0.53% as of Sep 30, 2016. Provision for loan losses was nil during the reported quarter, compared with $1.7 million in the prior-year quarter.
Further, the allowance for loan losses and reserve for unfunded commitments was 1.08% of gross loans outstanding, up 1 bp from Sep 30, 2016. The rise reflects continued shift in the mix of the loan portfolio to include a greater proportion of commercial loans outstanding that generally require higher reserves.
Strong Balance Sheet
As of Jun 30, 2017, net loans receivables were $10.7 billion, up 7.5% 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. However, we remain concerned about the company’s sizeable exposure to risky loan portfolios as well as rising expenses.
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.
Among other northeast banks, Sandy Spring Bancorp, Inc. (NASDAQ:SASR) , Webster Financial Corporation (NYSE:WBS) and First Bank (NASDAQ:FRBA) are expected to report second-quarter 2017 results on Jul 20, Jul 21 and Jul 25, respectively.
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Washington Federal, Inc. (WAFD): Free Stock Analysis Report
Sandy Spring Bancorp, Inc. (SASR): Free Stock Analysis Report
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