A month has gone by since the last earnings report for Washington Federal (WAFD - Free Report) . Shares have added about 0.3% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.
Washington Federal's Q2 Earnings Beat, Costs Rise
Washington Federal’s second-quarter fiscal 2019 (ended Mar 31) earnings came in at 63 cents per share, surpassing the Zacks Consensus Estimate of 61 cents. The figure also reflects year-over-year growth of 10.5%.
Results benefited from a rise in revenues, and decent growth in loan and deposit balances. However, expense growth was an undermining factor.
Net income for the quarter increased 3.7% year over year to $51.1 million.
Revenues Rise, Costs Flare Up
Net revenues for the quarter came in at $132.9 million, up 2.3% from the year-ago quarter. The revenue figure, however, lagged the Zacks Consensus Estimate of $133.4 million.
Net interest income was $120.1 million, up 2.4% from the year-earlier quarter. However, net interest margin shrunk 10 basis points (bps) year over year to 3.15%.
Total other income of $12.8 million inched up 1.8% from the prior-year tally. This upside was mainly driven by an increase in other income.
Operating expenses increased 3.3% from the prior-year quarter to $68 million. Higher compensation and benefit, occupancy and other expenses led to this upswing. Moreover, the company incurred Bank Secrecy Act (BSA)-related costs of nearly $1.2 million in the quarter under review.
The company’s efficiency ratio was 51.15%, up from 50.65% 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 10.20%, up from 9.81% witnessed at the end of the prior-year quarter. Return on average assets was 1.24% compared with 1.26% at the end of the year-ago quarter.
Loans & Deposits Rise
As of Mar 31, 2019, net loans receivables amounted to $11.9 billion, up from $11.5 billion recorded as of Sep 30, 2018. Also, customer deposit accounts were $11.7 billion, up from $11.4 billion as of Sep 30, 2018.
Credit Quality: A Mixed Bag
As of Mar 31, 2019, the ratio of non-performing assets to total assets was 0.36%, down 9 bps year over year. Furthermore, the allowance for loan losses and reserve for unfunded commitments were 1.05% of gross loans outstanding, down from 1.06% recorded as of Sep 30, 2018.
However, during the fiscal second quarter, the company recorded provision for loan losses of $0.75 million compared with a benefit of nearly $1 million in the prior-year quarter.
During the fiscal second quarter, Washington Federal repurchased 0.7 million shares at average price of $29.65 per share.
Management expects to incur an additional $1 million of non-recurring costs for BSA improvements in third-quarter fiscal 2019.
Effective tax rate is expected to be in the 20-22% range in fiscal 2019.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
At this time, Washington Federal has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Following the exact same course, 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 C. 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 these revisions looks promising. It comes with little surprise Washington Federal has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.