Washington Federal Posts Solid 4Q Despite M&A Costs

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Washington Federal (WAFD) in Seattle posted higher quarterly earnings despite costs tied to a recent acquisition.

The $14.4 billion-asset company's fourth-quarter earnings rose 14% from a year earlier, to $40.2 million. Earnings per share of 39 cents beat the expectations of analysts polled by Bloomberg by 2 cents.

Washington Federal attributed its success to continued loan growth, lower problem assets and an improved deposit mix. The company also incurred some costs from its recent purchase of 51 Bank of America (BAC) branches.

Net interest income rose 3% from a year earlier, to $98 million, because of reduced interest expense on customer accounts. The net interest margin compressed by 10 basis points, to 3.12%, primarily due to lower yields on loans.

Noninterest expenses rose 15% from a year earlier, to $44 million, because of having more employees and branches from the acquisition.

"Expenses related to the new branches will provide some drag on earnings over the next two quarters until we are able to complete branch consolidations, refine operations and fully invest the cash generated by the acquisition," Washington Federal Chairman and Chief Executive Roy Whitehead said in a press release. "Longer term, the addition of 230,000 new customers will only make our franchise more valuable."

The acquisition increased Washington Federal's customer deposits by $1.3 billion during the quarter, a 14% jump from a year earlier that included an improved funding mix. Specifically, transaction accounts rose by 33%; they now make up 45% of Washington Federal's total deposits.

The company recorded a $5 million reversal to its loan-loss allowance in the fourth quarter, compared to a $4 million provision a year earlier. The company also recorded a net recovery of $6 million compared to $10 million in net chargeoffs a year earlier.

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