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Washington Federal (WAFD) Down Despite Q1 Earnings Beat

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Washington Federal Inc. (WAFD - Free Report) reported first-quarter fiscal 2017 (ended Dec 31) earnings of 46 cents per share, beating the Zacks Consensus Estimate by a penny. The number also represents a year-over-year increase of 21.1%.

Washington Federal’s shares fell 3.4% following the earnings release. This perhaps shows investors’ concerns related to continued decline in net interest income and deteriorating asset quality. Nonetheless, growth in other income, nil provisions, fall in operating expenses and profitability ratios were the positives.

Washington Federal’s net income grew 17.5% year over year to $41.2 million.
 

 

 
Improved Other Income, Lower Expenses Support Results

Net revenue declined 2.1% year over year to $115.0 million. Also, the figure lagged the Zacks Consensus Estimate of $117.1 million.

Net interest income was $103.2 million, down 3.5% from the year-ago quarter. The primary reason behind the decline was lower yield on earning assets. Also, net interest margin fell 16 basis points (bps) year over year to 3.02%.

Other income grew 11.9% year over year to $11.9 million. The rise was primarily driven by an increase in other income and gain on sale of investments, partially offset by a fall in loan and deposit fee incomes.

Operating expenses declined 15.8% from the prior-year quarter to $54.3 million. The fall was due to lower product delivery costs, occupancy expenses, information technology and other expenses, partly offset by a rise in compensation and benefit and FDIC insurance premiums.

The company’s efficiency ratio came in at 47.23%, down from 54.90% a year ago. A fall in efficiency ratio indicates a improvement in profitability.

As of Dec 31, 2016, return on average common equity was 8.31%, up from 7.14% at the end of the prior-year quarter. Return on average assets came in at 1.11% compared with 0.96% in the year-ago quarter.

Credit Quality Deteriorate

As of Dec 31, 2016, the ratio of non-performing assets to total assets was 0.56%, compared with 0.48% as of Sep 30, 2016. Further, the allowance for loan losses and reserve for unfunded commitments was 1.09% of gross loans outstanding, up 2 bps sequentially. The rise reflects the continued shift in the mix of the loan portfolio to include a greater proportion of commercial loans outstanding that generally require higher reserves.

Similar to the prior-year quarter, provision for loan losses was nil during the reported quarter.

Share Repurchase

Washington Federal bought back 0.8 million shares at a weighted average price of $26.90 per share in the reported quarter. As of Dec 31, 2016, it had authorization to repurchase around 4.2 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.

Washington Federal, Inc. Price, Consensus and EPS Surprise

 

Washington Federal, Inc. Price, Consensus and EPS Surprise | Washington Federal, Inc. Quote

Currently, Washington Federal carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other financial savings and loan institutions, People's United Financial Inc. , Citizens Financial Group, Inc. (CFG - Free Report) and Flagstar Bancorp Inc. are slated to announce their results on Jan 19, Jan 20 and Jan 24, respectively.

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