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Washington Federal (WAFD) Q2 Earnings Beat; Stock Up 2%

Shares of Washington Federal Inc. WAFD were up nearly 2% following the release of its second-quarter fiscal 2016 (ended Mar 31), on Thursday before the market opened. Earnings of 45 cents per share surpassed the Zacks Consensus Estimate of 41 cents. Also, the figure compared favorably with 42 cents earned in the prior-year quarter.

The better-than-expected results were driven by growth in net interest income and reversal in provisions, partially offset by a slight fall in other income and higher expenses. Moreover, improvement in credit quality and profitability ratios acted as catalysts.

Net income grew 3.4% year over year to $41.7 million.

Performance in Detail

Net revenue was $117.1 million, up 2% year over year. However, the figure lagged the Zacks Consensus Estimate of $119 million.

Net interest income rose 2.4% year over year to $106.3 million. The increase was mainly attributable to higher average balances of loans receivable. Further, net interest margin climbed 6 basis points (bps) year over year to 3.16%.

Other income fell 1% year over year to $10.7 million. The decrease was largely due to lower loan fee income and deposit fee income.

Operating expenses increased 3.3% year over year to $59.2 million. The rise was primarily triggered by higher occupancy costs, FDIC insurance premium and information technology expenses.

As of Mar 31, 2016, return on average common equity (“ROE”) was 8.51%, up from 8.29% at the end of prior-year quarter. Return on average assets (“ROA”) came in at 1.14% versus 1.11% in the year-ago quarter.

Credit Quality

Credit quality displayed strength during the quarter. As of Mar 31, 2016, ratio of non-performing assets to total assets came in at 0.64%, down from 0.88% as of Sep, 30, 2015. Further, provision for loan losses was a benefit of $1.5 million as against $3.9 million in the year-ago quarter.

Also, allowance for loan losses and reserve for unfunded commitments was 1.10% of gross loans outstanding, down 3 bps from that of Sep 30, 2015.  The decrease reflected the continued improvements in economic conditions and the credit quality of the loan portfolio, partially offset by the growth in the loans outstanding.

Share Repurchase

Washington Federal bought back 1.63 million shares at an average price of $21.05 per share in the reported quarter. As of Mar 31, 2016, the company has authorization to repurchase around 2.1 million shares.

Our Viewpoint

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 Washington Federal’s sizeable exposure to real estate markets, where pricing remains soft. Also, mounting expenses pose a challenge, 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, People's United Financial Inc. PBCT and Citizens Financial Group, Inc. CFG are slated to announce results on Apr 21, while Flagstar Bancorp Inc. FBC will report on Apr 26.

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PEOPLES UTD FIN (PBCT): Free Stock Analysis Report
 
FLAGSTAR BANCP (FBC): Free Stock Analysis Report
 
CITIZENS FIN GP (CFG): Free Stock Analysis Report
 
WASH FEDL INC (WAFD): Free Stock Analysis Report
 
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