Washington Federal (WAFD) Q3 Earnings Lag Estimates, Costs Rise
Washington Federal’s WAFD third-quarter fiscal 2023 (ended Jun 30) earnings of 89 cents per share missed the Zacks Consensus Estimate of 92 cents per share. The bottom line, however, reflects a year-over-year decline of 2.2%.
Results primarily benefited from higher rates and a steady loan balance, which, in turn, supported net interest income (NII) growth. However, an increase in other expenses and a fall in other income were headwinds. Also, higher provisions on the back of a deteriorating economic outlook acted as a spoilsport.
Net income available to common shareholders was $58.1 million, down 2.5% from the prior-year quarter. Our estimate for the metric was $59.3 million.
Revenues Improve, Expenses Rise
Net revenues for the quarter were $182.5 million, up 7.8% from the year-ago quarter. However, the top line lagged the Zacks Consensus Estimate of $187 million.
NII came in at $168.7 million, rising 11.2% from the year-ago quarter. The net interest margin (NIM) was 3.27%, expanding 5 basis points (bps). Our estimates for NII and NIM were $173.8 million and 3.45%, respectively.
Total other income of $13.8 million plunged 21.5%. The decrease was mainly due to a substantial decline in loan fee income and other income. It also reported a loss on hedging derivatives. Our estimate for total other income was $14.4 million.
Total other expenses amounted to $94.7 million, up 8.3% from the year-ago quarter. Higher compensation and benefits, FDIC insurance premiums, product delivery and other expenses largely led to the rise. Our estimate for total other expenses was $105.1 million.
The company’s efficiency ratio was 51.90%, up from 51.63% a year ago. A rise in the efficiency ratio reflects lower profitability.
As of Jun 30, 2023, net loans receivable amounted to $17.38 billion, up marginally from the prior quarter end. Total customer deposits were $16.12 billion, up 1.6% from the previous quarter.
At the end of the fiscal third quarter, the return on average common equity was 11.09%, down from 12.50% at the end of the prior-year quarter. Return on average assets was 1.12%, down from 1.25% at the end of the prior-year quarter.
Credit Quality Worsens
As of Jun 30, the allowance for credit losses (including reserve for unfunded commitments) was 1.03% of gross loans outstanding, up 1 bps from the prior quarter end. Also, the ratio of non-performing assets to total assets was 0.30%, up 9 bps.
In the reported quarter, the provision for credit losses was $9 million, substantially higher than $3.5 million at the previous quarter end.
Share Repurchase Update
During the quarter, Washington Federal repurchased 1,116,649 shares at an average price of $25.62 per share.
Our Viewpoint
Decent loan growth, higher interest rates and a robust balance sheet will likely continue aiding Washington Federal’s financials. In November 2022, WAFD announced a deal to acquire Luther Burbank Corporation for $654 million. This acquisition will help the company to enter the lucrative and “fast-growing” California market.
However, elevated operating expenses and a worsening economic backdrop are major near-term headwinds.
Washington Federal, Inc. Price, Consensus and EPS Surprise
Washington Federal, Inc. price-consensus-eps-surprise-chart | Washington Federal, Inc. Quote
Currently, Washington Federal carries a Zacks Rank #4 (Sell).
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Earnings Release Dates of Other Banks
Bank of Hawaii BOH is slated to announce its second-quarter 2023 results on Jul 24.
Over the past seven days, the Zacks Consensus Estimate for BOH’s quarterly earnings has moved marginally up to $1.11 per share. The estimate indicates a 19.6% decrease from the prior-year quarter.
East West Bancorp EWBC is scheduled to release its second-quarter 2023 numbers on Jul 20.
Over the past seven days, the Zacks Consensus Estimate for EWBC’s quarterly earnings has moved marginally down to $2.20 per share. The figure implies a 21.5% increase from the prior-year quarter.
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Washington Federal, Inc. (WAFD) : Free Stock Analysis Report
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