Washington Federal Inc. (NASDAQ:WAFD) reported third-quarter fiscal 2016 earnings of 47 cents per share, beating the Zacks Consensus Estimate of 43 cents. The number also represents a year-over-year increase of 15%.
Earnings were driven by growth in net interest income, provision reversal and fall in operating expenses, moderately offset by a drop in other income. Moreover, improvements in credit quality and profitability ratios were on the positive side.
Net income rose 10.1% year over year to $43 million.
Revenue Decline Failed to Dampen Results
Net revenue declined 2.1% year over year to $114.7 million. Moreover, the figure lagged the Zacks Consensus Estimate of $119 million.
Net interest income was $104 million, up 3.7% from the year-ago quarter. The primary reason behind the rise was higher average balances of loans receivable. Also, net interest margin jumped 5 basis points (bps) year over year to 3.1%, attributable to improved margin on earning assets.
Other income plunged 11.2% year over year to $10.5 million. Wiped out gain on sale of investments turned out to be the major factor behind the decline. However, it was primarily offset by prepayment penalty on long-term debt.
Operating expenses were down 0.7% from the prior-year quarter to $56.3 million. The fall was due to lower compensation and benefit expenses in addition to product delivery costs, partially offset by higher information technology expenses.
The company’s efficiency ratio came in at 49.1%, down from 50.5% for the same period a year ago. A fall in efficiency ratio indicates a rise in profitability.
As of Jun 30, 2016, return on average common equity (“ROE”) was 8.7%, up from 8% at the end of the prior-year quarter. Return on average assets (“ROA”) came in at 1.2% compared with 1.1% in the year-ago quarter.
Credit Quality Showed Improvement
As of Jun 30, 2016, the ratio of non-performing assets to total assets was 0.5% - the lowest level achieved by the company since Mar 2008.
Besides, provision for loan losses was a benefit of $1.7 million compared with a benefit of $1.9 million in the year-ago quarter. The benefit was attributable to credit quality improvement, including net recoveries, partially offset by growth in the loan portfolio.
Further, the allowance for loan losses and reserve for unfunded commitments was 1.1% of gross loans outstanding, down 2 bps from Mar 31, 2016. The decrease reflects continued improvements in economic conditions and the credit quality of the loan portfolio, partially offset by growth in loans outstanding.
Dividends & Share Repurchase
Washington Federal paid a cash dividend of 14 cents per share to its common shareholders. The company bought back 1.1 million shares at a weighted average price of $23.3 per share in the reported quarter. As of Jun 30, 2016, it had authorization to repurchase around 1.0 million shares.
Our Perspective
Washington Federal is well positioned to grow through strategic acquisitions, given its strong capital and liquidity position. Further, the company continues to benefit from its deposit re-pricing efforts owing to lower deposit rates.
However, we remain concerned about the company’s sizeable exposure to real estate markets, where pricing remains soft. Also, high level of expenses due to continued investment in the franchise and branch acquisitions pose a challenge.
Currently, Washington Federal carries a Zacks Rank #3 (Hold).
Among other financial savings and loan institutions, People's United Financial Inc. (NASDAQ:PBCT) and Citizens Financial Group, Inc. (NYSE:CFG) are slated to announce results on Jul 21, while Flagstar Bancorp Inc. (NYSE:FBC) will report on Jul 26.
PEOPLES UTD FIN (PBCT): Free Stock Analysis Report
FLAGSTAR BANCP (FBC): Free Stock Analysis Report
CITIZENS FIN GP (CFG): Free Stock Analysis Report
WASH FEDL INC (WAFD): Free Stock Analysis Report
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