Washington Federal (WAFD) Beats Q2 Earnings, Costs Decline
Zacks Investment Research | Apr 17, 2017 08:56AM ET
Washington Federal Inc. (NASDAQ: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
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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.
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