Washington Federal Inc.
) fiscal first-quarter 2014 earnings (ended Dec 31) came in at 39
cents per share, surpassing the Zacks Consensus Estimate of 37
cents. The reported figure also compared favorably with 33 cents
earned in the year-ago quarter.
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Notably, our proven model had predicted that Washington Federal
would beat earnings as it had the right combination of two key
of +2.70% and Zacks Rank #3 (Hold).
Better-than-expected results were driven by top-line growth,
partly offset by higher operating expenses. Moreover,
improvements in asset quality and profitability ratios were
Washington Federal's net income increased 14.0% year over year to
Performance in Detail
Washington Federal's total revenue for the reported quarter came
in at $137.0 million, up 0.6% year over year. Further, it
outpaced the Zacks Consensus Estimate of $106.0 million.
Net interest income rose 3.0% from the prior-year quarter to
$98.3 million. The rise was mainly driven by lower interest
expense on customer accounts. Likewise, other income increased
16.8% year over year to $5.9 million. However, net interest
margin decreased 10 basis points (bps) from the prior-year
quarter to 3.12% due to lower yields on loans.
Operating expenses increased 15.2% from the year-ago quarter to
$44.1 million. The rise was primarily due to increase in
compensation and benefits expenses.
Washington Federal's profitability metrics depicted an
improvement as of Dec 31, 2013. Return on average common equity
(ROE) was 8.26%, up from 7.41% in the prior-year quarter.
Moreover, return on assets (ROA) was 1.19%, compared with 1.10%
in the year-ago period.
Credit quality continued to improve in the quarter with
Washington Federal reporting provision for loan losses as a
benefit of $4.6 million, against a provision of $3.6 million in
the prior-year quarter. Likewise, net loan recoveries came in at
$0.6 million compared with net loan charge-offs of $10.0 million
in the year-ago quarter.
As of Dec 31, 2013, total loan delinquencies were 1.81% of total
loans, down 108 bps from 2.89% as of Dec 31, 2012.
Washington Federal bought back 0.9 million shares for
approximately $18.9 million in the said quarter. Moreover, the
company has authorization to repurchase 9.0 million shares.
During the said quarter, Washington Federal completed the deal to
acquire 51 branches from
Bank of America Corporation
) for $17.3 million. The acquired branches are located in Eastern
Washington, Idaho, Oregon and New Mexico and added $1.3 billion
of deposits and $8.3 million of loans to the company's balance
Management anticipates expenses related to the new branches to be
a drag on earnings over the next two quarters as it completes
branch consolidations. Further, the company expects operating
expenses to increase going forward due to branch acquisition.
Presently, Washington Federal continues to benefit from
comparatively low interest rates. However, the expected rise in
interest rates will likely hurt the company's deposit re-pricing
efforts. Nevertheless, extensive capital deployment activities,
along with the 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 is also a challenge to the bank's
Among other companies in the same industry,
People's United Financial Inc.
Flagstar Bancorp Inc.
) are scheduled to report fourth quarter and full-year 2013
earnings on Jan 16 and Jan 22, respectively.