Washington Federal Beats on Q3 Earnings, Shares Dip 1%
Washington Federal Inc.’s (WAFD) shares fell nearly 1% in two days trading, following the release of its 2014 fiscal year-end earnings (ended Sep 30) on Oct 22, before the market opened. The company reported quarter-end earnings of 41 cents per share, beating the Zacks Consensus Estimate of 38 cents. The bottom line, however, was at par with the prior-year quarter figure.
For the fiscal year ended on Sep 2014, earnings came in at $1.55 per share, up from $1.45 earned in the fiscal year ended on Sep 2013.
Better-than-expected results were driven by higher revenues, which were partly offset by higher expenses. Though credit quality remained strong during the quarter, profitability ratios were mixed.
For the quarter ended Sep 2014, Washington Federal’s net income decreased 5.5% year over year to $42.9 million.
Performance in Detail
Total revenue came in at $113.5 million, up 10.4% year over year. However, it was slightly lower than the Zacks Consensus Estimate of $114.0 million. For the fiscal year 2014, total revenue was $436.3 million, up 8.5% from the fiscal year 2013.
For the reported quarter, net interest income increased 6.6% from the prior-year quarter to $103.4 million. The rise was mainly driven by higher investment income and lower interest expense on customer accounts. Likewise, other income soared 72% year over year to $10.1 million. However, net interest margin decreased 21 basis points (bps) from the prior-year quarter to 3.00%.
For the quarter ended on Sep, 2014, operating expenses increased 26.3% from the year-ago quarter to $54.5 million. The rise was due to an increase in all items of expenses except FDIC premiums and other costs.
Credit Quality
Credit quality continued to improve in the quarter. Washington Federal’s provision for loan losses during the quarter constituted a reversal of $3.5 million against a reversal of $2.3 million in the year-ago quarter. During the quarter, net loan recoveries of $6.7 million more than offset $2.1 million in charge-offs.
Further, allowance for loan losses plus a reserve for unfunded loan commitments represented 1.33% of total gross loans, down 13 bps from 1.46% as of Sep 30, 2013.
Profitability Ratios
Washington Federal’s profitability ratios were mixed as of Sep 30, 2014. Return on average common equity (:ROE) was 8.19%, down from 8.89% in the prior-year quarter. Return on assets (:ROA) was 1.10%, in line with year-ago period.
Share Repurchase
Washington Federal bought back 4.8 million shares for an average price of $21.59 per share in the fiscal 2014. Moreover, the company has authorization to repurchase an additional 5 million shares.
Our Viewpoint
Washington Federal continues to benefit from comparatively low interest rates. However, an expected rise in interest rates will likely hurt the company’s deposit re-pricing efforts. Nevertheless, extensive capital deployment activities, along with acquisitions, will boost shareholders’ confidence in the stock.
Though Washington Federal is optimistic about the recovering economy, we remain concerned about the company’s sizeable exposure to real estate markets, where pricing remains soft. Further, mounting expenses continue to pose a challenge to the bank’s performance.
Currently, Washington Federal carries a Zacks Rank #3 (Hold).
Other Financial Savings & Loan Institutions
Among other financial savings and loan institutions, Meridian Bancorp, Inc. (EBSB), Talmer Bancorp, Inc. (TLMR) and Select Bancorp, Inc. (SLCT) are scheduled to report results on Oct 28, Nov 4 and Nov 11, respectively.
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