It has been about a month since the last earnings report for Washington Federal, Inc. (WAFD - Free Report) . Shares have lost about 2.4% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is WAFD due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Washington Federal Q2 Earnings Lag as Expenses Rise
Washington Federal’s second-quarter fiscal 2018 (ended Mar 31) earnings of 57 cents per share lagged the Zacks Consensus Estimate of 60 cents. However, the figure reflects year-over-year growth of 21.3%.
An increase in expenses hurt results to quite an extent. However, higher net interest revenues and non-interest income were among the positives. Also, rise in loan and deposit balances, and improving asset quality supported results.
The company’s net income was $49.3 million, up 17.1% from the prior-year quarter.
Revenues Improve, Expenses Rise
Net revenues came in at $129.9 million, up 10.2% from the year-ago quarter. However, the figure missed the Zacks Consensus Estimate of $131.9 million.
Net interest income was $117.3 million, up 8.9% from the year-ago quarter. Also, net interest margin expanded 10 basis points year over year to 3.25%.
Other income jumped 24.2% year over year to $12.6 million. The rise was mainly driven by an increase in deposit fee income and other income.
Operating expenses rose 14.5% from the prior-year quarter to $65.8 million. The rise was largely due to higher compensation and benefit, product delivery, information technology costs and other expenses.
The company’s efficiency ratio was 50.65%, up from 48.76% a year ago. A rise in efficiency ratio indicates deterioration in profitability.
At the end of the reported quarter, return on average common equity was 9.81%, up from 8.37% at the end of the prior-year quarter. Return on average assets was 1.26% compared with 1.13% in the year-ago quarter.
Loans & Deposits Rise
As of Mar 31, 2018, net loans receivables were $11.2 billion, up from $10.9 billion recorded as of Sep 30, 2017. Also, customer deposit accounts were $11.2 billion, up from $10.8 billion as of Sep 30, 2017.
Improvement in Credit Quality
As of Mar 31, 2018, the ratio of non-performing assets to total assets was 0.45% compared with 0.53% as of Mar 31, 2017. Further, the allowance for loan losses and reserve for unfunded commitments were 1.07% of gross loans outstanding, in line with the Sep 30, 2017 level.
Notably, provision for loan losses was a benefit of nearly $1 million compared with benefit of $1.6 million in the prior-year quarter.
During the reported quarter, Washington Federal repurchased 1.7 million shares at an average price of $34.66 per share.
Washington Federal expects annual effective tax rate to be nearly 21-23% for fiscal 2018 (blended rate year) and 20-22% for fiscal 2019.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter.
Washington Federal, Inc. Price and Consensus
At this time, WAFD has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.
The company's stock is suitable solely for value based on our styles scores.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. It's no surprise WAFD has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.