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Washington Federal (WAFD) Q3 Earnings Miss on High Provisions

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Washington Federal’s (WAFD - Free Report) third-quarter fiscal 2020 (ended Jun 30) earnings were 46 cents per share, missing the Zacks Consensus Estimate by a penny. The figure also declined 31.3% year over year.

The results reflect a decline in revenues, significant rise in provisions and higher operating expenses. However, improving loan and deposit balances were a tailwind.

Net income was $34.9 million, declining 35.3% from the prior-year quarter.

Revenues Down, Expenses Rise

Net revenues came in at $130.7 million, down 3.7% from the year-ago quarter. The figure marginally lagged the Zacks Consensus Estimate of $131.4 million. 

Net interest income was $117.4 million, down 3.5% from the year-ago quarter. Also, net interest margin declined 36 basis points (bps) to 2.82%.

Total other income of $13.3 million decreased 5.5% from the prior-year quarter. The fall was mainly due to lower deposit fee income and other income.

Operating expenses were up 6.2% year over year to $75.3 million. Rise in compensation and benefits costs, as well as information technology expenses largely resulted in higher operating expenses.

The company’s efficiency ratio was 57.65%, up from 52.24% recorded a year ago. A rise in efficiency ratio indicates deterioration in profitability.   

As of Jun 30, 2020, net loans receivables were $12.7 billion compared with $11.9 billion on Sep 30, 2019. Further, customer deposit accounts amounted to $13.1 billion, up from $12 billion reported as of Sep 30, 2019.

Credit Quality Worsens

As of Jun 30, 2020, the ratio of non-performing assets to total assets was 0.25%, down 2 bps from the Sep 30, 2019 level.

However, provision for credit losses was $10.8 million compared with nil provision a year ago. Substantially higher provisions reflect estimated impacts to energy, hospitality, restaurant and senior living industries.

Also, allowance for credit losses and reserve for unfunded commitments were 1.29% of gross loans outstanding, up 25 bps from the Sep 30, 2019 figure.

Profitability Ratios Deteriorate

At fiscal third quarter-end, return on average common equity was 7.01%, down from 10.68% in the comparable prior-year period. Return on average assets was 0.78%, down from 1.31% in the corresponding period of last year.

Share Repurchase Update

During the quarter, Washington Federal repurchased 1,594 shares at a weighted average price of $24.90 per share. As of Jun 30, 2020, the company had 4.6 million shares remaining under the buyback authorization.

Our View

Washington Federal’s efforts to grow organically and decent loan demand are likely to support revenues. However, lower interest rates, economic slowdown and persistently rising expenses are major near-term concerns.

Washington Federal, Inc. Price and EPS Surprise

Washington Federal, Inc. Price and EPS Surprise

Washington Federal, Inc. price-eps-surprise | Washington Federal, Inc. Quote

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

Performance of Other Banks

Zacks #3 Ranked First Horizon National Corporation (FHN - Free Report) reported second-quarter 2020 adjusted earnings per share of 20 cents, missing the Zacks Consensus Estimate of 21 cents. Further, the bottom line was 52.4% lower than the year-ago figure.

Regions Financial (RF - Free Report) , holding a Zacks Rank #4 (Sell), reported second-quarter 2020 adjusted loss of 23 cents per share against earnings of 39 cents recorded in the prior-year period. The Zacks Consensus Estimate was pegged at earnings of 7 cents per share.

Zacks #3 Ranked Zions Bancorporation’s (ZION - Free Report) second-quarter 2020 net earnings per share of 34 cents missed the Zacks Consensus Estimate of 37 cents. Moreover, the bottom line compares unfavorably with the year-ago quarter’s 99 cents per share.

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