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Washington Federal Tops Earnings & Revenues, Costs Rise

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Shares of Washington Federal Inc.WAFD have increased over 4% since the company reported its fiscal fourth-quarter and full year 2015 (ended Sep 30) results on Oct 21, before the market opened. Earnings of 45 cents per share outpaced the Zacks Consensus Estimate of 39 cents. The figure also came 10% above the prior-year quarter tally.

Washington Federal Inc. - Earnings Surprise | FindTheBest

For fiscal 2015, earnings per share of $1.67 surpassed the Zacks Consensus Estimate of $1.60. Moreover, the figure compared favorably with the year-ago tally of $1.55 per share.

Results benefited from an increase in revenues, partly offset by a rise in expenses and provisions. While profitability ratios showed improvement, credit quality represented a mixed bag.

Washington Federal's net income grew 5% year over year to $42.5 million. For fiscal 2015, net income came in at $160.3 million, up 2% year over year.

Performance in Detail

Net revenue was $119.2 million, up 5% year over year. The rise was mainly driven by higher interest income and lower interest expense. Also, the figure compared favorably with the Zacks Consensus Estimate of $112.3 million.

For fiscal 2015, net revenues summed $453.9 million, up 4% year over year. Further, the reported figure outpaced the Zacks Consensus Estimate of $452.0 million.

Net interest income rose 3% year over year to $106.9 million. The increase was mainly due to higher loan balances resulting in a rise in interest income on loans and reduced funding costs. Further, net interest margin climbed 19 basis points (bps) year over year to 3.19%.

Other income, however, surged 23% year over year to $12.4 million. The increase was attributable to a rise in all the components of income.

Operating expenses increased 5% from the year-ago quarter to $57.2 million. The rise was primarily triggered by an increase in all items of expenses except other expense, which fell during the quarter.

Credit Quality

Credit quality displayed a mixed picture during the quarter. As of Sep 30, 2015, ratio of non-performing assets to total assets came in at 0.88%, down from 1.00% as of Sep, 30, 2014. Further, total loan delinquencies descended to 0.84% as of Sep 30, 2015 against 1.44% as of Sep 30, 2014.

However, provision for loan losses amounted to $0.2 million, compared with a reversal of $3.5 million in the year-ago quarter.

Profitability Ratios

Washington Federal's profitability ratios improved in the quarter. As of Sep 30, 2015, return on average common equity ("ROE") stood at 8.72%, up from 8.20% at the end of prior-year quarter. Return on average assets ("ROA") came in at 1.17% versus 1.10% in the year-ago quarter.

Share Repurchase

During the fiscal 2015, Washington Federal bought back 5.8 million shares for an average price of $21.70 per share in the reported quarter. As of Sep 30, 2015, the company has authorization to repurchase around 4 million shares.

Our Viewpoint

Washington Federal is well positioned for growth through strategic acquisitions, given its strong capital and liquidity position. Also, the company's low sensitivity to the transaction deposit account portfolio has limited its exposure to the prevalent low interest rate environment. Further, the company continues to benefit from deposit re-pricing efforts owing to lower deposit rates.

However, the anticipated interest rate rise might hurt such efforts. Moreover, we remain concerned about the company's sizeable exposure to real estate markets, where pricing remains soft. At the same time, mounting expenses pose a challenge before the bank's performance, as it continues to invest in the franchise and engage in branch acquisitions.

Currently, Washington Federal carries a Zacks Rank #3 (Hold).

Among other financial savings and loan institutions, Flagstar Bancorp Inc. FBC is scheduled to release third-quarter 2015 results on Oct 27, while Investors Bancorp Inc. ISBC and Talmer Bancorp, Inc. TLMR are slated to report on Oct 29.

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WASH FEDL INC (WAFD): Free Stock Analysis Report

FLAGSTAR BANCP (FBC): Free Stock Analysis Report

INVESTORS BANCP (ISBC): Free Stock Analysis Report

TALMER BANCORP (TLMR): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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