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Washington Federal's (WAFD) Q4 Earnings Beat, Revenues Miss

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Washington Federal’s (WAFD - Free Report) fourth-quarter fiscal 2020 (ended Sep 30) earnings came in at 45 cents per share, surpassing the Zacks Consensus Estimate of 42 cents. However, the figure reflects a year-over-year plunge of 31.8%.

Results reflect higher expense, lower interest rates, provision losses and a fall in other income. However, rise in loan and deposit balances provided support.

Net income for the fiscal fourth quarter slipped 34.4% year over year to $34.3 million.

For fiscal 2020, earnings of $2.26 per share were down 13.4% year over year. The reported figure, however, outpaced the Zacks Consensus Estimate of $1.97. Net income fell 17.5% to $173.4 million.

Revenues Decrease, Costs Flare Up

Net revenues for the reported quarter came in at $125.9 million, down 7.9% from the year-ago quarter. The top-line figure also missed the Zacks Consensus Estimate of $135.6 million.

For fiscal 2020, net revenues came in at $556.5 million, up 2.4%. Also, the top line surpassed the consensus estimate of $532.4 million.

Net interest income was $114.8 million in the fiscal fourth quarter, down 4.4% from the year-earlier period. Moreover, net interest margin shrunk 45 basis points (bps) to 2.67%.

Total other income of $11.1 million plummeted 32.7% from the prior-year quarter. This mainly resulted from the decrease in other income and deposit fee income.

Operating expenses flared up 7.8% year on year to $78.2 million. Higher compensation and benefit, FDIC insurance premiums, information technology and other expenses led to this upswing.

The company’s efficiency ratio was 62.09%, up from the 53.08% recorded a year ago. A rise in efficiency ratio indicates deterioration in profitability.

At the end of the fiscal fourth quarter, return on average common equity was 6.83%, down from the 10.32% witnessed at the end of the year-ago quarter. Return on average assets was 0.74%, down from 1.26% at the end of the year-ago quarter.

Loans & Deposits Rise

As of Sep 30, 2020, net loans receivables amounted to $12.8 billion, up from the $11.9 billion recorded on Sep 30, 2019. Also, customer deposit accounts were $13.8 billion, up from $12 billion recorded on Sep 30, 2019.

Credit Quality Deteriorates

As of Sep 30, 2020, the ratio of non-performing assets to total assets was 0.20%, down 7 bps year over year. Furthermore, the allowance for loan losses and reserve for unfunded commitments was 1.33% of gross loans outstanding, up from the 1.04% recorded on Sep 30, 2019.

Additionally, the provision for credit losses during the fiscal fourth quarter was $6.5 billion, as against the $1.9 billion release recorded in the prior year.

Share Repurchase Update

During fiscal 2020, Washington Federal repurchased 3.3 million shares at an average price of $33.58 per share.

Our View

Washington Federal is well poised to grow organically on a continued rise in loan balances. Nonetheless, persistently rising expenses, low interest-rate environment and the uncertainties due to the pandemic are likely to impede the company’s bottom-line growth. Further, deteriorating credit quality remains a headwind.

Washington Federal, Inc. Price, Consensus and EPS Surprise

Washington Federal, Inc. Price, Consensus and EPS Surprise

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

 

Currently, Washington Federal carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Release Schedules of Other Banks

Associated Banc-Corp (ASB - Free Report) is set to release third-quarter 2020 results on Oct 22, while Prosperity Bancshares, Inc. (PB - Free Report) and BankUnited, Inc. (BKU - Free Report) are scheduled to report on Oct 28.

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