It has been about a month since the last earnings report for Washington Federal (WAFD - Free Report) . Shares have lost about 2.4% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
Washington Federal Q3 Earnings Beat, Revenues Rise
Washington Federal’s third-quarter fiscal 2019 (ended Jun 30) earnings came in at 67 cents per share, surpassing the Zacks Consensus Estimate of 64 cents. The figure also reflects year-over-year growth of 10%.
Results benefited from a rise in revenues, decent growth in loan and deposit balances, and no provisions. However, higher expense was an undermining factor.
Net income increased 5% year over year to $53.9 million.
Revenues & Costs Increase
Net revenues came in at $135.7 million, up 3% from the year-ago quarter. The figure beat the Zacks Consensus Estimate of $134.2 million.
Net interest income was $121.7 million, up 2% from the year-earlier quarter. However, net interest margin declined 11 basis points (bps) to 3.18%.
Total other income of $14.0 million grew 13% from the prior-year quarter. This upside was driven by increase in other income and loan fee income.
Operating expenses were up 6% from the prior-year quarter to $70.9 million. Higher compensation and benefit, occupancy and other expenses led to this upswing. Moreover, the company incurred Bank Secrecy Act-related costs of nearly $1.1 million in the quarter under review.
The company’s efficiency ratio was 52.24%, up from 50.62% 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 10.68%, up from 10.30% witnessed at the end of the prior-year quarter. Return on average assets was 1.31%, on par with the year-ago quarter.
Loans & Deposits Rise
As of Jun 30, 2019, net loans receivables amounted to $12 billion, up from $11.5 billion recorded as of Sep 30, 2018. Also, customer deposit accounts were $11.8 billion, up from $11.4 billion as of Sep 30, 2018.
Credit Quality Improves
As of Jun 30, 2019, the ratio of non-performing assets to total assets was 0.31%, down 15 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.
Additionally, provision for loan losses was nil during the reported quarter against $1 million recorded in the prior-year quarter.
Share Repurchase Update
During the fiscal third quarter, Washington Federal repurchased 1.1 million shares at average price of $32.45 per share.
Effective tax rate is expected to be roughly 21% going forward.
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 an average Growth Score of C, however its Momentum Score is doing a bit better with a B. 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 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 this revision 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.