WAFD's Q3 Earnings Beat Estimates, Revenues Rise on LBC Deal

WaFd, Inc.'s WAFD third-quarter fiscal 2024 (ended Jun 30) adjusted earnings of 76 cents per share handily surpassed the Zacks Consensus Estimate of 59 cents. Also, the bottom line rose 4.1% sequentially.

The quarter marked the first full quarter after the completion of the acquisition of Luther Burbank Corporation (LBC).

The results reflected a rise in net interest income (NII) and other income, which aided the top line. Also, higher loan balances and lower provisions were other positives. However, a rise in expenses and a slight decline in the deposit balance acted as spoilsports.

Results in the reported quarter excluded merger-related costs and certain non-operating expenses. After considering those, net income available to common shareholders (GAAP basis) was $60.9 million or 75 cents per share, significantly up from $12.2 million or 17 cents per share in the prior quarter.

Revenues Rise, Expenses Up

Adjusted net revenues were $193.4 million, rising 11.2% from the prior quarter. Also, the top line surpassed the Zacks Consensus Estimate of $180.6 million.

NII came in at $177.2 million, growing 11.7% sequentially. The net interest margin was 2.56%, contracting 17 basis points (bps). Our estimates for NII and NIM were $166.8 million and 2.74%, respectively.

The total adjusted other income of $16.2 million rose 5.9%. Our estimate for the metric was $14.5 million.

Total adjusted other expenses were $107.8 million, up 5.9%. The rise was due to an increase in all the components. Our estimate for the metric was $114.8 million. During the reported quarter, WaFd recorded $2.3 million of merger-related expenses for the LBC deal.

The company's adjusted efficiency ratio was 55.7%, down from 58.5% in the prior quarter. A fall in the efficiency ratio reflects improved profitability.

As of Jun 30, 2024, net loans receivable were $20.9 billion, growing marginally from the prior quarter. During the quarter, the company sold $2.8 billion of acquired multifamily loans.

Total customer deposits were $21.2 billion, recording a slight fall. 

At the end of the fiscal third quarter, the adjusted return on average common equity was 9.36%, up from 8.74% at the end of the prior quarter. Adjusted return on average assets was 0.88%, stable on a sequential basis.

Credit Quality: A Mixed Bag

As of Jun 30, 2024, allowance for credit losses (including reserve for unfunded commitments) was 1% of gross loans outstanding, stable from the prior quarter end.

In the reported quarter, the provision for credit losses was $1.5 million compared with $16 million provisions in the previous quarter.

The ratio of non-performing assets to total assets was 0.24%, up 1 bp.

Share Repurchase Update

During the quarter, WAFD repurchased 0.36 million shares at an average price of $26.63 per share.

In May, the company increased the buyback authorization by 10 million shares. As of Jun 30, 2024, approximately 11.5 million shares remained available under the authorization.

Our Viewpoint

Decent loan growth, higher interest rates and a robust balance sheet are likely to continue aiding WAFD's financials. The LBC acquisition expanded the company's presence in the lucrative California market and will be accretive to earnings in fiscal 2025. However, elevated expenses and an expected economic slowdown are near-term headwinds.

Currently, WAFD carries a Zacks Rank #3 (Hold).

Earnings Dates & Expectations of Other Banks

BankUnited BKU is scheduled to announce second-quarter 2024 numbers on Jul 18.

Over the past 30 days, the Zacks Consensus Estimate for BKU's quarterly earnings has been revised 1.5% down to 65 cents, suggesting a 16.7% decline from the prior-year reported number.

Commerce Bancshares CBSH is also set to announce second-quarter 2024 numbers on Jul 18.

Over the past month, the Zacks Consensus Estimate for CBSH's quarterly earnings has moved 3.4% north to 91 cents. This implies a 6.2% decrease from the prior-year quarter.

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