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Why Is Washington Federal (WAFD) Up 4.3% Since Last Earnings Report?

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A month has gone by since the last earnings report for Washington Federal (WAFD - Free Report) . Shares have added about 4.3% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Washington Federal due for a pullback? 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 catalysts.

Washington Federal's Q1 Earnings Beat o High Revenues

Washington Federal’s first-quarter fiscal 2019 (ended Dec 31) earnings came in at 65 cents per share, surpassing the Zacks Consensus Estimate of 61 cents. The figure also reflects year-over-year growth of 10.2%.

Results benefited from a rise in revenues, and decent growth in loan and deposit balances. Improvement in credit quality was also a positive. However, expense growth was an undermining factor.

Net income for the quarter increased 2.5% year over year to $52.9 million.

Revenue Growth Offsets Cost Increase

Net revenues for the quarter came in at $138.2 million, up 12.8% from the year-ago quarter. The revenue figure also outpaced the Zacks Consensus Estimate of $133.3 million.

Net interest income for the quarter was $119.2 million, up 3% from the year-ago quarter. However, net interest margin shrunk 5 basis points (bps) year over year to 3.21%.

Total other income of $19 million increased significantly from $6.8 million in the prior-year quarter. This upside mainly stemmed from net gains from sale and valuation adjustments of fixed assets, as well as absence of expense from FDIC loss share valuation adjustments in the prior-year quarter.

Operating expenses flared up 15.7% from the prior-year quarter to $71.7 million. The rise was due to an increase in all-cost components. Moreover, the company incurred Bank Secrecy Act (BSA)-related costs of nearly $3.6 million in the quarter under review.

Management expects to incur an additional $2 million of non-recurring costs for BSA improvements over the next two quarters.

The company’s efficiency ratio was 51.9%, up from 47.3% recorded 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 10.64%, up from 10.25% at the end of the prior-year quarter. Return on average assets was 1.32% compared with 1.35% at the end of the year-ago quarter.

Loans & Deposits Rise

As of Dec 31, 2018, net loans receivables amounted to $11.7 billion, up from $11.5 billion recorded as of Sep 30, 2018. Also, customer deposit accounts were $11.6 billion, up from $11.4 billion as of Sep 30, 2018.

Credit Quality Improves

As of Dec 31, 2018, the ratio of non-performing assets to total assets was 0.39%, down 2 bps year over year. Further, the allowance for loan losses and reserve for unfunded commitments were 1.06% of gross loans outstanding, flat compared with the Sep 30, 2018 level.

Moreover, during the reported quarter, the company recorded release for loan losses of $5 million compared with no provision in the prior-year quarter.

Share Repurchases

During the fiscal first quarter, Washington Federal repurchased 1.7 million shares at an average price of $28.12 per share.

Outlook

Management expects to incur an additional $2 million of non-recurring costs for BSA improvements over the next two quarters.

Effective tax rate is expected to be in the 20-22% range in fiscal 2019.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.

VGM Scores

Currently, Washington Federal has a subpar Growth Score of D, a grade with the same score on the momentum front. 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.

Outlook

Washington Federal has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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