Washington Federal (WAFD) Tops Q4 Earnings as Costs Fall

Washington Federal Inc.WAFD reported fourth-quarter fiscal 2016 (ended Sep 30) earnings of 49 cents per share, beating the Zacks Consensus Estimate of 44 cents. The number also represents a year-over-year increase of 8.9%.

For fiscal 2016, the company's earnings per share of $1.78 surpassed the Zacks Consensus Estimate of $1.76. Moreover, the figure compared favorably with the year-ago tally of $1.67 per share.

Better-than-expected earnings were driven by growth in other income, provision reversal and fall in operating expenses, moderately offset by a drop in net interest income. Moreover, improvements in credit quality and profitability ratios were the positives.

Washington Federal's net income grew 4.1% year over year to $44.2 million. For fiscal 2016, net income came in at $164.0 million, up 2.3% year over year.

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Improved Other Income & Lower Expenses Support Results

Net revenue declined nearly 1% year over year to $118.0 million. Nonetheless, the figure surpassed the Zacks Consensus Estimate of $117.0 million.

For fiscal 2016, net revenue summed $467.3 million, up 2.9% year over year. Further, the reported figure outpaced the Zacks Consensus Estimate of $466.3 million.

Net interest income was $102.8 million, down 3.8% from the year-ago quarter. The primary reason behind the decline was lower investment securities and cash equivalents. Also, net interest margin fell 18 basis points (bps) year over year to 3.01%.

Other income jumped 22.6% year over year to $15.2 million. The rise was primarily driven by an increase in other income, partially offset by a wiped out gain on sale of investments and a fall in loan and deposit fee income.

Operating expenses were down 3.1% from the prior-year quarter to $55.4 million. The fall was due to lower compensation and benefit expenses in addition to product delivery costs and occupancy expenses, partially offset by higher FDIC insurance premiums, information technology and other expenses.

The company's efficiency ratio came in at 48.54%, up from 47.98% a year ago. A rise in efficiency ratio indicates a decline in profitability.

As of Sep 30, 2016, return on average common equity was 8.96%, up from 8.72% at the end of the prior-year quarter. Return on average assets came in at 1.19% compared with 1.17% in the year-ago quarter.

Credit Quality Showed Improvement

As of Sep 30, 2016, the ratio of non-performing assets to total assets was 0.48%, compared with 0.88% as of Sep 30, 2015. Besides, provision for loan losses was a benefit of $3.1 million, compared with a provision of $0.2 million in the year-ago quarter.

Further, the allowance for loan losses and reserve for unfunded commitments was 1.07% of gross loans outstanding, down 6 bps year over year. The decline in the ratio of the allowance to gross loans since the prior fiscal year end reflects continued improvement in economic conditions and the credit quality of the loan portfolio.

Dividends & Share Repurchase

Washington Federal paid a cash dividend of 14 cents per share to its common shareholders. The company bought back 3.9 million shares at a weighted average price of $22.72 per share in the reported quarter. As of Sep 30, 2016, it had authorization to repurchase around 5.0 million additional shares.

Our Perspective

Washington Federal is well positioned to grow through strategic acquisitions, given its strong capital and liquidity position. Further, the company continues to benefit from its deposit re-pricing efforts owing to lower deposit rates.

However, we remain concerned about the company's sizeable exposure to real estate markets, where pricing remains soft. Also, high level of expenses due to continued investment in the franchise and branch acquisitions pose a challenge.

WASH FEDL INC Price, Consensus and EPS Surprise

WASH FEDL INC Price, Consensus and EPS Surprise | WASH FEDL INC Quote

Currently, Washington Federal carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here.

Among other financial savings and loan institutions, People's United Financial Inc. PBCT , Citizens Financial Group, Inc. CFG and Flagstar Bancorp Inc. FBC are slated to announce their results on Oct 20, Oct 21 and Oct 25, respectively.

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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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