A month has gone by since the last earnings report for Washington Federal, Inc. WAFD . Shares have added about 3.6% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is WAFD 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 Q3 Earnings Beat on Higher Revenues
Washington Federal's third-quarter fiscal 2018 (ended Jun 30) earnings of 61 cents per share surpassed the Zacks Consensus Estimate of 59 cents. Further, the figure reflects year-over-year growth of 24.5%.
Results benefited from a rise in net interest income, and decent loan and deposit growth. However, lower total other income, increase in operating expenses and higher provision for loan losses were the undermining factors.
Net income was $51.4 million, up 16.5% from the prior-year quarter. Loan Growth, Higher Rates Aid Revenues, Expenses Rise
Net revenues came in at $132.3 million, up 8% from the year-ago quarter. Also, the figure topped the Zacks Consensus Estimate of $131.7 million.
Net interest income was $120 million, up 10.3% from the year-ago quarter.
Also, net interest margin rose 16 basis points (bps) year over year to 3.29%. The increase can primarily be attributed to changes in the mix of interest earning assets, higher yields on variable rate loans, cash and investments as well as a lower rate on FHLB advances.
Total other income declined 10.6% year over year to $12.5 million. The decrease was mainly due to absence of gains recognized on bank owned life insurance.
Operating expenses increased 17.4% from the prior-year quarter to $67 million. The rise was largely due to higher information technology costs. Moreover, the company incurred Bank Secrecy Act (BSA) related costs of nearly $4.9 million in the reported quarter.
The company's efficiency ratio was 50.62%, up from 46.57% 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 10.30%, up from 8.70% at the end of the prior-year quarter. Return on average assets was 1.31% compared with 1.17% in the year-ago quarter. Loans & Deposits Rise
As of Jun 30, 2018, net loans receivables were $11.3 billion, up from $10.9 billion recorded as of Sep 30, 2017. Also, customer deposit accounts were $11.3 billion, up from $10.8 billion as of Sep 30, 2017. Improvement in Credit Quality
As of Jun 30, 2018, the ratio of non-performing assets to total assets was 0.46%, down 4 bps year over year. Further, the allowance for loan losses and reserve for unfunded commitments were 1.06% of gross loans outstanding, down 1 bps from the Sep 30, 2017 level.
However, provision for loan losses was $1 million compared with no provisions in the prior-year quarter. Share Repurchases
During the reported quarter, Washington Federal repurchased 1.2 million shares at an average price of $32.64 per share. Outlook
Management expects to incur an additional $10 million of non-recurring costs for BSA improvements over the next four quarters. Thereafter, BSA costs are anticipated to be roughly $2 million per quarter.
Washington Federal expects annual effective tax rate to be nearly 21% for fiscal 2018 (blended rate year).
How Have Estimates Been Moving Since Then?
Fresh estimate followed a flat path over the past two months.
At this time, WAFD has a poor Growth Score of F, however its Momentum is doing a lot better with a B. 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.
Our style scores indicate that the stock is more suitable for momentum investors than value investors.
WAFD has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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