Washington Federal Inc.
(
WAFD
) reported second-quarter earnings for fiscal 2012 (ended March 31,
2012) of 32 cents per share, marginally beating the Zacks Consensus
Estimate of 30 cents. The result was also substantially better than
the year-ago quarter's earnings of 23 cents.
Net unrealized gains along with decline in credit costs and
decent expansion of net interest margin (
NIM
) boosted the quarter's results. On the other hand, higher
operating expenses and decline in top line had an unfavorable
influence on the results. Overall, sustained improvement in asset
quality and enhanced capital ratios were impressive.
Washington Federal's net income in the reported quarter jumped
32% to $34.1 million from $25.8 million in the prior-year
quarter.
Quarter in Detail
Washington Federal's total revenue for the reported quarter was
$109.6 million, down 39% from $114.1 million in the prior-year
quarter. The decline was attributable to absence of a non-recurring
gain on sale of investments realized in the prior-year quarter.
However, this compares favorably with the Zacks Consensus Estimate
of $106.0 million.
Net interest income for the quarter (before provision for loan
losses) climbed up 3% year over year to $104.6 million. NIM for the
reported quarter grew 3 basis points year over year to 3.29%.
Operating expenses for the quarter climbed 10.5% from the
year-ago quarter to $36.8 million. The rise was mainly a result of
higher compensation and benefits expenses as well as occupancy
costs, which were partially offset by lower Federal Deposit
Insurance Corporation (FDIC) premiums.
Credit Quality
Improvement in credit quality persisted during the six
months-period ended March 31, 2012 with Washington Federal
reporting lower balances of provision for loan losses,
nonperforming assets and loan delinquencies. The company recorded
provision for loan losses of $29.2 million as of March 31, 2012,
down nearly 49% from $56.8 million as of September 30, 2011.
Moreover, as of March 31, 2012, total loan delinquencies were
2.95% against 3.43% as of September 30, 2011. Similarly,
nonperforming assets totaled $286 million or 2.11% of total assets
at March-end, down 23% from September 30, 2011.
Profitability Metrics
Profitability metrics continued to display improvement on a
year-over-year basis. Return on equity (ROE) was 7.12% compared
with 5.59% in the prior-year quarter. Return on assets (ROA) was
1.00% as compared with 0.77% in the year-ago period.
Share Repurchase Update
During the fiscal second quarter 2012, Washington Federal
repurchased 625,200 shares at a weighted average price of $16.00.
The shares were repurchased under the extended 10 million share
buyback program announced in June 2011.
Acquisitions in the Reported Quarter
During the reported quarter, Washington Federal completed the
systems conversion and integration of Phoenix, Arizona-based failed
Western National Bank. The acquisition, announced in December 2011,
added 3 branches in Arizona and is further expected to assist the
company in expanding its branch network in this region.
On April 4, 2012, Washington Federal announced a deal to acquire
Oregon-based South Valley Bancorp Inc. The deal is anticipated to
be closed by October end. The merger deal will result in the
combined company having 190 offices in 8 western states. Moreover,
following the completion of the deal, total assets and total
deposits of the company will sum up to $14.4 billion and $9.6
billion, respectively, based on financial results as of December
31, 2011. Also, the acquisition will lead to a greater access to
branch network, higher liquidity and increased lending capacity,
which will boost the profitability in the long run.
Our Viewpoint
Though Washington Federal is optimistic regarding the uptrend in
the economy, we remain concerned about the company's considerable
exposure to real estate markets where pricing remains soft.
Currently, Washington Federal is enjoying the benefits of lower
interest rates, but the anticipated rise in interest rates will
likely ruin the company's deposit re-pricing effort going
forward.
However, interest income expansion and nonperforming asset
contraction will significantly support the bottom line. Moreover,
sustained capital deployment activities will continue to boost
investors' confidence in the stock. Also, the company will benefit
from the recent acquisitions.
Two of the peers of Washington Federal,
Astoria Financial Corporation
(
AF
) and
Sterling Financial Corporation
(
STSA
) are expected to report their first quarter 2012 results on April
18 and April 25, respectively.
Currently, Washington Federal retains a Zacks #3 Rank, which
translates into a short-term 'Hold' rating.
ASTORIA FINL CP (
AF
): Free Stock Analysis Report
STERLING FIN WA (
STSA
): Free Stock Analysis Report
WASH FEDL INC (
WAFD
): Free Stock Analysis Report
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