The company also “purchased a mix of short and longer term assets totaling $1.7 billion with an anticipated weighted average yield of 1.85 percent, and restructured an additional $100 million of long term debt to lengthen maturity and reduce the weighted average rate from 4.04 percent to 3.33 percent,” and said that “an ongoing review of the investment portfolio and long-term debt likely will result in additional transactions of a similar nature.”
Washington Federal CEO Roy Whitehead said that “given current interest rate conditions, we decided it prudent to harvest most of the steadily diminishing gain in the securities portfolio and prepay high-cost debt,” and added that the moves “are not expected to have a material effect on net earnings this quarter, and will limit potential margin compression from prepayments on securities and provide more financial flexibility in the future.”
Washington Federal’s net interest margin had narrowed to 3.05 percent during the fiscal third quarter ended June 30, from 3.29 percent the previous quarter, and 3.44 percent a year earlier. The company’s overall performance performance improved, with fiscal third-quarter earnings of $35.2 million, or 33 cents a share, increasing from $34.1 million, or 32 cents a share, the previous quarter and $30.1 million, or 27 cents a share year earlier, with Whitehead saying in July that the higher net income was “attributed primarily to the material decline in expenses related to problem assets, which more than offset a decline in net interest income.”
The company’s ROA for the 12-month period ended June 30 was 0.98 percent, and its ROE was 6.97 percent.
Sterne Agee analyst Brett Rabatin has a neutral rating on Washington Federal, and said in August after the balance sheet restricting was announced that, “We still believe the shares will trade in fairly close proximity to [tangible book value] given a difficult revenue growth environment, but our view is more positive on WAFD post the announced partial deleveraging of the balance sheet despite a similar EPS outlook.”
Rabatin estimates that Washington Federal will earn $1.31 a share for all of 2012, followed by EPS of $1.34 in 2013.
“Besides a higher level of confidence on the forward NIM due to less concern over MBS pre-pays, the balance sheet is overall better positioned for low or rising interest rates,” he said.
3. Oritani Financial
Shares of Oritani Financial of the Township of Washington, N.J., closed at $14.79 Wednesday, returning 19 percent year-to-date, following an 8-percent return during 2011.
The shares trade for 1.3 times their reported June 30 book value of $11.30, and for 18.5 times the consensus 2013 EPS estimate of 80 cents. The consensus 2012 EPS estimate is 70 cents.
Based on a quarterly payout of 15 cents, the shares have a dividend yield of 3.38 percent.
The company’s efficiency ratio for the 12-months ended June 30 was 37.78 percent.
For its fiscal fourth-quarter ended June 30, Oritani Financial reported net income of $8.3 million, or 20 cents a share, compared to $8.4 million, or 20 cents a share, the previous quarter, and $7.3 million, or 14 cents a share, a year earlier. The company’s net interest margin expanded to 3.66 percent in the fiscal fourth quarter, from 3.58 percent the previous quarter, and 3.40 percent a year earlier.
According to Thomson Reuters Bank Insight, Oritani’s ROA for the 12-month period ended June 30 was 1.21 percent, while the company’s ROE was 5.95 percent.
During the 12 months ended June 30, the company repurchased 11,056,605 shares for a total cost of $143.6 million, and an average cost per share of $12.99. As of July 25 — with no further repurchases since June — the company was authorized under its current repurchase program to buy back an additional 1,904,476 shares.
Sterne Agee analyst Mike Shafir has a “neutral” rating on Oritani, and said in July that the company “continues to deliver solid results,” with the most recent quarter “highlighted by net interest margin expansion and robust loan growth” and also said the company “is building a valuable New Jersey franchise while returning excess capital to shareholders.”
The analyst’s earnings estimate for 2012 and 2013 match the consensus.
2. Signature Bank of New York
Shares of Signature Bank of New York closed at $66.78 Wednesday, returning 11 percent year-to-date, following a 20-percent return during 2011.
The shares trade for 2.1 times their reported June 30 book value of $32.49, and for 16 times the consensus 2013 EPS estimate of $4.22. The consensus 2012 EPS estimate is $3.77.
The bank's efficiency ratio for the 12-months ended June 30 was 37.07 percent.
Signature Bank reported second-quarter earnings of $45.3 million, or 96 cents a share, increasing from $42.4 million, or 90 cents a share, in the first quarter, and $36.6 million, or 87 cents a share, in the second quarter of 2011. The company has been growing very quickly, with total deposits increasing 19 percent year-over-year, to $13.0 billion as of June 30, while net loans and leases grew 32 percent year-over-year, to $7.9 billion.
The company's ROA for the 12-month period ended June 30 was 1.09 percent, while its ROE was 11.35 percent.
Sterne Agee analyst Peyton Greene rates Signature Bank a "Buy," with a $75 price target, and said on Tuesday that "we believe loan growth will be slightly stronger than previously expected in 3Q12E," and that "coupled with revenue growth of 12 percent to 15 percent in 2013E-2014E," he expected consensus estimates to move closer to his 2013 EPS estimate of $4.40, and his 2014 consensus EPS estimate of $5.10.
Greene called Signature Bank "one of our top growth recommendations," and said that "the primary difference in our view versus consensus is that we are more optimistic regarding net interest income growth."
The analyst also noted that the bank's "management has been much more thoughtful in constructing an investment portfolio that would be subject to less prepayment risk from a refi wave."
1. Discover Financial Services
Shares of Discover Financial Servicesclosed at $38.51 Wednesday, returning 61 percent year-to-date, following a 31-percent return during 2011.
The shares trade for 2.4 times tangible book value, according to Thomson Reuters Bank Insight, and for 10 times the consensus 2013 EPS estimate of $4.02. The consensus 2012 EPS estimate is $4.23.
Based on a quarterly payout of 10 cents, the shares have a dividend yield of 1.04 percent.
Discover has been the most efficient of actively traded U.S. banks, with an efficiency ratio of 36.54 percent, for the 12-month period ended May 31. The company’s fiscal year ends on Nov. 30.
Reflecting its emphasis on credit card lending and payment services, as well as the company’s low-cost online deposit gathering model, Discover’s ROA for the 12-months ended June 30 was 3.30 percent, while its ROE was 33.30 percent.
KBW analyst Sanjay Sakhrani rates Discover “outperform,” with a price target of $40, saying after the PayPal deal was announced that it was “clearly a big win for the network side” of Discover’s business, “as it exemplifies the value-added services it can provide and the optionality of the company’s business model.” The analyst added that “while there are likely to be some costs associated with the roll-out, we think it should be manageable for the company,” and estimated that "Discover could earn 10 to 20 (basis points) of the transaction, which would be consistent with [Visa andMastercard] economics.”
Sakhrani estimates that for its fiscal 2012 ended Nov. 30, Discover will earn $4.21 a share, followed by EPS of $3.96 in fiscal 2013.
—By TheStreet.com’s Philip van Doorn
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