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Washington Federal (WAFD) Q2 Earnings Miss on High Provisions

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Zacks Equity Research
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Washington Federal’s WAFD second-quarter fiscal 2020 (ended Mar 31) earnings were 49 cents per share, missing the Zacks Consensus Estimate of 55 cents. The figure also declined 22.2% year over year.

The results reflect a decline in net interest income amid lower interest rates, significant rise in provisions and higher operating expenses. However, improving loan and deposit balances, and increase in total other income were tailwinds.

Net income was $38 million, declining 25.7% from the prior-year quarter.

Revenues & Expenses Rise

Net revenues came in at $133.9 million, up nearly 1% from the year-ago quarter. The figure marginally surpassed the Zacks Consensus Estimate of $133.2 million.  

Net interest income was $117.6 million, down 2% from the year-ago quarter. Also, net interest margin declined 5 basis points (bps) to 3.10%.

Total other income of $16.2 million increased 26.8% from the prior-year quarter. This upside was mainly driven by gain on sale of investment securities and higher deposit fee income.

Operating expenses were up 16.9% year over year to $79.4 million. Rise in all cost components led to this increase.

The company’s efficiency ratio was 59.34%, up from 51.15% recorded a year ago. A rise in efficiency ratio indicates deterioration in profitability.

At the end of the fiscal second quarter, return on average common equity was 7.43%, down from 10.20% in the comparable prior-year period. Return on average assets was 0.93%, down from 1.24% in the corresponding period of last year.

As of Mar 31, 2020, net loans receivables were $12 billion compared with $11.9 billion on Sep 30, 2019. Further, customer deposit accounts amounted to $12.1 billion, marginally up from $12 billion reported as of Sep 30, 2019.

Credit Quality Worsens

As of Mar 31, 2020, the ratio of non-performing assets to total assets was 0.24%, down 3 bps from the Sep 30, 2019 level.

However, provision for loan losses increased to $6.2 million from $0.8 million recorded a year ago. Substantially higher provisions reflect the economic slowdown caused by the coronavirus pandemic.

Additionally, allowance for loan losses and reserve for unfunded commitments were 1.10% of gross loans outstanding, up 6 bps from the Sep 30, 2019 figure.

Share Repurchase Update

During the quarter, Washington Federal repurchased 2.4 million shares at weighted average price of $32.43 per share. As of Mar 31, 2020, the company had 4.6 million shares remaining under the buyback authorization.

Our View

Washington Federal’s efforts to grow organically and decent loan demand are likely to support revenues. However, lower interest rates and persistently rising expenses are major near-term concerns.

Washington Federal, Inc. Price, Consensus and EPS Surprise

Washington Federal, Inc. Price, Consensus and EPS Surprise
Washington Federal, Inc. Price, Consensus and EPS Surprise

Washington Federal, Inc. price-consensus-eps-surprise-chart | Washington Federal, Inc. Quote

Currently, the company carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Release Date of Other Banks

Bank OZK OZK, Associated Banc-Corp ASB and SVB Financial SIVB are scheduled to announce first-quarter results on Apr 23.

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Washington Federal, Inc. (WAFD) : Free Stock Analysis Report
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