Webster Marginally Misses on Earnings

Zacks

Webster Financial Corp. (WBS) reported its first-quarter 2013 earnings of 44 cents per share, missing the Zacks Consensus Estimate by a penny. However, the results compares favorably with the year-ago earnings of 42 cents.

The improvement in the quarterly results came on the back of increased top line and reduced operating expenses. Moreover, loan and deposit balances witnessed growth in the quarter. However, an increase in total nonperforming assets was the downside.

Net income available to shareholders for the reported quarter came in at $39.2 million, up 2.4% from $38.3 million in the prior-year quarter.

Performance in Detail

Webster’s total revenue increased marginally from the prior-year quarter to $218.4 million. But revenues surpassed the Zacks Consensus Estimate of $198.0 million by 10.3%.

Webster’s net interest income edged up 1.7% year over year to $145.8 million. The rise was mainly attributable to lower interest expenses. However, net interest margin dipped 13 basis points from the prior-year quarter to 3.23%. The decline was primarily attributable to a drop in yield on interest-earning assets.

Webster’s non-interest income stood at $48.3 million, rising 9.8% from $44.0 million in the prior-year quarter. The increase was primarily due to higher deposit service fees, increased wealth and investment services, higher income from mortgage banking activities, increase in cash surrender value of life insurance policies and net gain on investment securities, partially offset by lower loan related fees and other income.

Webster’s non-interest expense was $123.9 million, down by 2.13% from $126.6 million in the prior-year quarter. The decline was primarily attributable to lower compensation and benefits, reduced expenses in occupancy, deposit insurance, technology and equipment, intangible assets amortization, professional and outside services as well as foreclosed and repossessed assets expenses, partly offset by an increase in loan workout expenditures, other expenses and marketing costs.

The efficiency ratio for Webster improved to 62.16% from 65.63% in the prior-year quarter. The reduction in efficiency ratio indicates increased profitability.

Asset Quality

Webster’s asset quality was a mixed bag in the quarter. The ratio of nonperforming loans to total loans rose to 1.66% from 1.58% in the prior-year quarter.

Further, the ratio of net charge-offs to annualized average loans came in at 0.56%, down from 0.96% in the year-ago quarter. Total nonperforming assets stood at $203.4 million, increasing 10.4% from the year-ago quarter.

Loans and Deposits

Webster’s total loans in the reported quarter were $12.0 billion, rising 6.1% from the year-ago quarter. The improvement was mainly driven by an increase in commercial loans, commercial real estate loans and residential mortgages.

Webster’s total deposits for the quarter climbed 4.9% year over year to $14.6 billion. The increase was primarily due to the higher levels of demand deposits including interest-bearing checking, money market instruments, savings deposits and brokered certificate of deposits.

Profitability and Capital Ratios

Webster’s profitability and capital ratios exhibited a modestly cautious approach. As of Mar 31, 2013, tier 1 risk-based capital ratio was 12.72% compared with 12.47% as of Dec 31, 2012 and 12.86% as of Mar 31, 2012.

Total risk-based capital ratio came in at 13.98% as against 13.73% in the prior quarter and 14.12% in the prior-year quarter. Tangible common equity ratio stood at 7.35%, up from 7.15% as of Dec 31, 2012 and 7.11% as of Mar 31, 2012.

The return on average assets was 0.84% in the reported quarter compared with 0.98% as of Dec 31, 2012 and 0.82% as of Mar 31, 2012. As of Mar 31, 2013, return on average stockholders' equity came in at 8.01%, down from 9.74% as of Dec 31, 2012 and 8.30% as of Mar 31, 2012. Book value per common share was recorded at $21.90, down from $22.75 in the prior quarter but up from $21.24 in the year-ago period.

Our Viewpoint

Webster’s decent top-line growth and expenses management should help it grow going forward. Moreover, improving credit quality and strong balance sheet are expected to prove beneficial in its overall expansion.

However, we are concerned about the existing low interest rate environment, sluggish economic growth and stringent regulatory issues, which might act as a headwind for the company’s financials in the subsequent quarters.

Webster currently carries a Zacks Rank #3 (Hold). Among other Northeast banks, The Bancorp Inc. (TBBK) and  First Connecticut Bancorp, Inc. (FBNK) currently retain a Zacks Rank #1 (Strong Buy) whereas CNB Financial Corp. (CCNE) carries a Zacks Rank #2 (Buy).
 

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