Thrifts & Mortgage Finance Stocks Q3 Highlights: Walker & Dunlop (NYSE:WD)

WaFd Bank trades at $32.18 and has moved in lockstep with the market. Its shares have returned 13.3% over the last six months while the S&P 500 has gained 15.4%.

Is now the time to buy WaFd Bank, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free for active Edge members.

Why Do We Think WaFd Bank Will Underperform?

We're cautious about WaFd Bank. Here are three reasons we avoid WAFD and a stock we'd rather own.

1. Net Interest Income Points to Soft Demand

Net interest income commands greater market attention due to its reliability and consistency, whereas one-time fees are often seen as lower-quality revenue that lacks the same dependable characteristics.

WaFd Bank’s net interest income has grown at a 6.9% annualized rate over the last five years, worse than the broader banking industry and in line with its total revenue.

2. Net Interest Margin Dropping

Net interest margin (NIM) represents how much a bank earns in relation to its outstanding loans. It's one of the most important metrics to track because it shows how a bank's loans are performing and whether it has the ability to command higher premiums for its services.

Over the past two years, WaFd Bank’s net interest margin averaged 2.6%. Its margin also contracted by 76 basis points (100 basis points = 1 percentage point) over that period.

This decline was a headwind for its net interest income. While prevailing rates are a major determinant of net interest margin changes over time, the decline could mean that WaFd Bank either faced competition for loans and deposits or experienced a negative mix shift in its balance sheet composition.

3. EPS Barely Growing

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

WaFd Bank’s EPS grew at an unimpressive 9% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 6.7% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.

Final Judgment

We cheer for all companies supporting the economy, but in the case of WaFd Bank, we’ll be cheering from the sidelines. That said, the stock currently trades at 0.9× forward P/B (or $32.18 per share). This valuation tells us a lot of optimism is priced in - you can find more timely opportunities elsewhere. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.

Earnings results often indicate what direction a company will take in the months ahead. With Q2 behind us, let’s have a look at TFS Financial and its peers.

Thrifts & Mortgage Finance institutions operate by accepting deposits and extending loans primarily for residential mortgages, earning revenue through interest rate spreads (difference between lending rates and borrowing costs) and origination fees. The industry benefits from demographic tailwinds as millennials enter prime homebuying age, technological advancements streamlining the loan approval process, and potential interest rate stabilization improving affordability. However, significant headwinds include net interest margin compression during rate volatility, increased competition from fintech disruptors offering digital-first experiences, mounting regulatory compliance costs, and potential housing market corrections that could impact loan portfolios and default rates.

The 16 thrifts & mortgage finance stocks we track reported a mixed Q2. As a group, revenues beat analysts’ consensus estimates by 4.7% while next quarter’s revenue guidance was 0.5% below.

Thankfully, share prices of the companies have been resilient as they are up 5.4% on average since the latest earnings results.

TFS Financial

Tracing its roots back to 1938 during the Great Depression era when savings and loans were vital to homeownership, TFS Financial is a savings and loan holding company that provides mortgage lending, deposit services, and other retail banking products primarily in Ohio and Florida.

TFS Financial reported revenues of $80.54 million, up 6% year on year. This print fell short of analysts’ expectations by 0.8%. Overall, it was a slower quarter for the company with EPS in line with analysts’ estimates and a slight miss of analysts’ revenue estimates.

Interestingly, the stock is up 11.6% since reporting and currently trades at $14.10.

Read our full report on TFS Financial here, it’s free for active Edge members.

Best Q2: Ellington Financial

Operating under the guidance of Ellington Management Group, a respected name in structured credit markets, Ellington Financial acquires and manages a diverse portfolio of mortgage-related, consumer-related, and other financial assets to generate returns for investors.

Ellington Financial reported revenues of $82.76 million, up 23.6% year on year, outperforming analysts’ expectations by 4.9%. The business had an exceptional quarter with a beat of analysts’ EPS estimates and an impressive beat of analysts’ revenue estimates.

However, the results were likely priced into the stock as it’s traded sideways since reporting. Shares currently sit at $13.67.

Is now the time to buy Ellington Financial? Access our full analysis of the earnings results here, it’s free for active Edge members.

Weakest Q2: WaFd Bank

Founded in 1917 and rebranded from Washington Federal in 2023, WaFd is a bank holding company that provides lending, deposit services, and insurance through its Washington Federal Bank subsidiary across eight western states.

WaFd Bank reported revenues of $187.2 million, flat year on year, falling short of analysts’ expectations by 2%. It was a disappointing quarter as it posted a significant miss of analysts’ net interest income estimates and a significant miss of analysts’ EPS estimates.

Interestingly, the stock is up 16.1% since the results and currently trades at $32.30.

Read our full analysis of WaFd Bank’s results here.

PennyMac Financial Services

Founded during the 2008 financial crisis to help address the mortgage market meltdown, PennyMac Financial Services is a specialty financial services company that originates, services, and manages investments related to residential mortgage loans in the United States.

PennyMac Financial Services reported revenues of $637.1 million, up 11.3% year on year. This print beat analysts’ expectations by 10.7%. Overall, it was an exceptional quarter as it also put up an impressive beat of analysts’ net interest income estimates and a solid beat of analysts’ revenue estimates.

The stock is up 10.7% since reporting and currently trades at $133.88.

Read our full, actionable report on PennyMac Financial Services here, it’s free for active Edge members.

Arbor Realty Trust

With roots dating back to 2003 and a focus on the stability of multifamily housing, Arbor Realty Trust is a specialized lender that provides financing solutions for multifamily and commercial real estate while also originating and servicing government-backed mortgage loans.

Arbor Realty Trust reported revenues of $112.4 million, down 28.2% year on year. This number came in 25.8% below analysts' expectations. Aside from that, it was a mixed quarter as it also logged a beat of analysts’ EPS estimates but a significant miss of analysts’ revenue estimates.

Arbor Realty Trust had the weakest performance against analyst estimates and slowest revenue growth among its peers. The stock is down 21.5% since reporting and currently trades at $9.07.

Read our full, actionable report on Arbor Realty Trust here, it’s free for active Edge members.

What Happened?

Shares of community banking company Columbia Financial jumped 3.8% in the afternoon session after the broader savings and loan industry gained from an improved lending environment supported by a recent rate cut from the Federal Reserve. The central bank's move, along with signals of further easing, was expected to help stabilize funding costs for financial institutions. For banks like Columbia, lower rates can help boost the income they earn from making loans. The positive outlook for the sector came as the company had also previously reported strong financial results. In the third quarter, Columbia Financial's revenues had increased by 29.4% compared to the previous year, surpassing analysts' expectations.

After the initial pop the shares cooled down to $16.86, up 3.7% from previous close.

Is now the time to buy Columbia Financial? Access our full analysis report here.

What Is The Market Telling Us

Columbia Financial’s shares are not very volatile and have only had 5 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.

The previous big move we wrote about was 12 days ago when the stock gained 4% on the news that comments from a key Federal Reserve official boosted hopes for an interest rate cut. New York Federal Reserve President John Williams stated he sees “room for a further adjustment” in the near term, sparking a significant market rally. Following his remarks, the probability of the central bank cutting rates at its December meeting jumped from 39% to over 73%, according to the CME FedWatch tool. This positive sentiment provided relief to markets amid concerns over high valuations, particularly in AI-related stocks.

Columbia Financial is up 8.2% since the beginning of the year, and at $16.86 per share, it is trading close to its 52-week high of $17.80 from December 2024. Investors who bought $1,000 worth of Columbia Financial’s shares 5 years ago would now be looking at an investment worth $1,147.

As the Q3 earnings season comes to a close, it’s time to take stock of this quarter’s best and worst performers in the thrifts & mortgage finance industry, including Annaly Capital Management and its peers.

Thrifts & Mortgage Finance institutions operate by accepting deposits and extending loans primarily for residential mortgages, earning revenue through interest rate spreads (difference between lending rates and borrowing costs) and origination fees. The industry benefits from demographic tailwinds as millennials enter prime homebuying age, technological advancements streamlining the loan approval process, and potential interest rate stabilization improving affordability. However, significant headwinds include net interest margin compression during rate volatility, increased competition from fintech disruptors offering digital-first experiences, mounting regulatory compliance costs, and potential housing market corrections that could impact loan portfolios and default rates.

The 14 thrifts & mortgage finance stocks we track reported a satisfactory Q3. As a group, revenues beat analysts’ consensus estimates by 5.6% while next quarter’s revenue guidance was 0.5% below.

In light of this news, share prices of the companies have held steady as they are up 3% on average since the latest earnings results.

Annaly Capital Management

Operating as a real estate investment trust since 1996 with a focus on generating income from interest rate spreads, Annaly Capital Management is a diversified capital manager that invests in agency mortgage-backed securities, residential mortgage loans, and mortgage servicing rights.

Annaly Capital Management reported revenues of $885.6 million, up 637% year on year. This print exceeded analysts’ expectations by 7.2%. Despite the top-line beat, it was still a mixed quarter for the company with an impressive beat of analysts’ revenue estimates but a significant miss of analysts’ net interest income estimates.

“We were pleased to generate an 8.1% economic return during the third quarter and 11.5% economic return for the first nine months of the year as each of our investment strategies drove strong performance and contributed to earnings that again exceeded our dividend,” said Chief Executive Officer & Co-Chief Investment Officer David Finkelstein.

Annaly Capital Management pulled off the fastest revenue growth of the whole group. Unsurprisingly, the stock is up 7.5% since reporting and currently trades at $22.91.

Read our full report on Annaly Capital Management here, it’s free for active Edge members.

Best Q3: Ellington Financial

Operating under the guidance of Ellington Management Group, a respected name in structured credit markets, Ellington Financial acquires and manages a diverse portfolio of mortgage-related, consumer-related, and other financial assets to generate returns for investors.

Ellington Financial reported revenues of $82.76 million, up 23.6% year on year, outperforming analysts’ expectations by 4.9%. The business had an exceptional quarter with a beat of analysts’ EPS estimates and a solid beat of analysts’ revenue estimates.

However, the results were likely priced into the stock as it’s traded sideways since reporting. Shares currently sit at $13.61.

Is now the time to buy Ellington Financial? Access our full analysis of the earnings results here, it’s free for active Edge members.

Weakest Q3: WaFd Bank

Founded in 1917 and rebranded from Washington Federal in 2023, WaFd is a bank holding company that provides lending, deposit services, and insurance through its Washington Federal Bank subsidiary across eight western states.

WaFd Bank reported revenues of $187.2 million, flat year on year, falling short of analysts’ expectations by 2%. It was a disappointing quarter as it posted a significant miss of analysts’ net interest income estimates and a significant miss of analysts’ EPS estimates.

Interestingly, the stock is up 14.2% since the results and currently trades at $31.79.

Read our full analysis of WaFd Bank’s results here.

AGNC Investment

Born during the 2008 financial crisis when mortgage markets were in turmoil, AGNC Investment is a real estate investment trust that primarily invests in mortgage-backed securities guaranteed by U.S. government agencies or enterprises.

AGNC Investment reported revenues of $836 million, up 122% year on year. This print topped analysts’ expectations by 42.3%. Zooming out, it was a slower quarter as it produced a significant miss of analysts’ net interest income estimates and a significant miss of analysts’ EPS estimates.

AGNC Investment scored the biggest analyst estimates beat among its peers. The stock is up 3.6% since reporting and currently trades at $10.47.

Read our full, actionable report on AGNC Investment here, it’s free for active Edge members.

Columbia Financial

Founded during the Roaring Twenties in 1926 and headquartered in Fair Lawn, New Jersey, Columbia Financial operates federally chartered savings banks in New Jersey that offer traditional banking services including loans, deposits, and insurance products.

Columbia Financial reported revenues of $64.91 million, up 29.4% year on year. This number beat analysts’ expectations by 15.5%. Overall, it was a very strong quarter as it also logged an impressive beat of analysts’ revenue estimates and a beat of analysts’ EPS estimates.

The stock is up 14.7% since reporting and currently trades at $16.27.

Read our full, actionable report on Columbia Financial here, it’s free for active Edge members.

The end of an earnings season can be a great time to discover new stocks and assess how companies are handling the current business environment. Let’s take a look at how Ellington Financial and the rest of the thrifts & mortgage finance stocks fared in Q3.

Thrifts & Mortgage Finance institutions operate by accepting deposits and extending loans primarily for residential mortgages, earning revenue through interest rate spreads (difference between lending rates and borrowing costs) and origination fees. The industry benefits from demographic tailwinds as millennials enter prime homebuying age, technological advancements streamlining the loan approval process, and potential interest rate stabilization improving affordability. However, significant headwinds include net interest margin compression during rate volatility, increased competition from fintech disruptors offering digital-first experiences, mounting regulatory compliance costs, and potential housing market corrections that could impact loan portfolios and default rates.

The 14 thrifts & mortgage finance stocks we track reported a satisfactory Q3. As a group, revenues beat analysts’ consensus estimates by 5.6% while next quarter’s revenue guidance was 0.5% below.

In light of this news, share prices of the companies have held steady as they are up 3.3% on average since the latest earnings results.

Best Q3: Ellington Financial

Operating under the guidance of Ellington Management Group, a respected name in structured credit markets, Ellington Financial acquires and manages a diverse portfolio of mortgage-related, consumer-related, and other financial assets to generate returns for investors.

Ellington Financial reported revenues of $82.76 million, up 23.6% year on year. This print exceeded analysts’ expectations by 4.9%. Overall, it was an exceptional quarter for the company with a beat of analysts’ EPS and revenue estimates.

“Robust securitization activity, excellent results from our securities businesses, and continued solid credit performance across our diversified loan businesses, including Longbridge, drove Ellington Financial’s strong results for the quarter,” said Laurence Penn, Chief Executive Officer and President.

Unsurprisingly, the stock is down 1.3% since reporting and currently trades at $13.49.

Is now the time to buy Ellington Financial? Access our full analysis of the earnings results here, it’s free for active Edge members.

PennyMac Financial Services

Founded during the 2008 financial crisis to help address the mortgage market meltdown, PennyMac Financial Services is a specialty financial services company that originates, services, and manages investments related to residential mortgage loans in the United States.

PennyMac Financial Services reported revenues of $637.1 million, up 11.3% year on year, outperforming analysts’ expectations by 10.7%. The business had an exceptional quarter with an impressive beat of analysts’ net interest income estimates and a solid beat of analysts’ revenue estimates.

The market seems happy with the results as the stock is up 10.9% since reporting. It currently trades at $134.09.

Is now the time to buy PennyMac Financial Services? Access our full analysis of the earnings results here, it’s free for active Edge members.

Weakest Q3: WaFd Bank

Founded in 1917 and rebranded from Washington Federal in 2023, WaFd is a bank holding company that provides lending, deposit services, and insurance through its Washington Federal Bank subsidiary across eight western states.

WaFd Bank reported revenues of $187.2 million, flat year on year, falling short of analysts’ expectations by 2%. It was a disappointing quarter as it posted a significant miss of analysts’ net interest income estimates and a significant miss of analysts’ EPS estimates.

Interestingly, the stock is up 15.4% since the results and currently trades at $32.12.

Read our full analysis of WaFd Bank’s results here.

Walker & Dunlop

Originating as a small mortgage banking firm during the Great Depression in 1937, Walker & Dunlop provides commercial real estate financing, property sales, appraisal, and investment management services with a focus on multifamily properties.

Walker & Dunlop reported revenues of $337.7 million, up 15.5% year on year. This result beat analysts’ expectations by 3.5%. More broadly, it was a slower quarter as it produced a significant miss of analysts’ net interest income estimates and a narrow beat of analysts’ EPS estimates.

The stock is down 19.4% since reporting and currently trades at $64.41.

Read our full, actionable report on Walker & Dunlop here, it’s free for active Edge members.

PennyMac Mortgage Investment Trust

Operating as a real estate investment trust since 2009 to maintain tax advantages, PennyMac Mortgage Investment Trust is a specialty finance company that invests in mortgage-related assets and operates a correspondent lending business.

PennyMac Mortgage Investment Trust reported revenues of $99.23 million, up 22.7% year on year. This number topped analysts’ expectations by 2.1%. It was an exceptional quarter as it also put up a beat of analysts’ EPS estimates and a solid beat of analysts’ net interest income estimates.

The stock is up 10.1% since reporting and currently trades at $12.88.

Read our full, actionable report on PennyMac Mortgage Investment Trust here, it’s free for active Edge members.