A month has gone by since the last earnings report for Washington Federal (WAFD - Free Report) . Shares have lost about 2.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Washington Federal due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Washington Federal Q3 Earnings Miss on High Provisions
Washington Federal’s 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.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
Currently, Washington Federal has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Washington Federal has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.