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A month has gone by since the last earnings report for Webster Financial (WBS). Shares have added about 12.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Webster Financial due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Webster Financial Q1 Earnings Beat, Revenues Down Y/Y
Webster Financial reported first-quarter 2021 adjusted earnings per share of $1.25, which surpassed the Zacks Consensus Estimate of 89 cents. The reported figure excluded noteworthy items such as charges related to strategic optimization initiatives.
Growth in deposit balances as well as higher fee income benefited the company. Also, a strong capital base during the quarter was a tailwind.
However, elevated non-interest expenses, along with lower net interest margin (NIM), were key concerns. Additionally, decline in revenues on account of lower net interest income affected the bank’s performance.
The company reported earnings applicable to common shareholders (on GAAP basis) of $105.5 million or $1.17 per share, up from the prior-year quarter’s $36 million or 39 cents.
Revenues Decline, Expenses Rise, Deposits Improve
Webster Financial’s total revenues in the quarter edged down 1.2% year over year to $300.5 million. However, the top line surpassed the Zacks Consensus Estimate of $294.7 million.
Net interest income declined 3% year over year to $223.8 million. Moreover, NIM contracted 31 basis points (bps) to 2.92%.
Non-interest income was $76.8 million, up 4.6% year over year. This rise mainly resulted from higher loan and lease related fees, wealth and investment services and other income.
Non-interest expenses of $188 million flared up 5.1% from the year-ago quarter. This upswing chiefly resulted from rise in almost all components, except marketing, loan workout expenses, deposit insurance and other expenses.
Efficiency ratio (on a non-GAAP basis) came in at 58.46% compared with 58.03% as of Mar 31, 2020. A higher ratio indicates lower profitability.
The company’s total loans and leases as of Mar 31, 2021 were $21.3 billion, down 1.4% sequentially. However, total deposits were up 4.4% from the previous quarter to $28.5 billion.
Credit Quality Improves
Total non-performing assets were $152.8 million as of Mar 31, 2021, down 9.6% from the year-ago quarter. In addition , allowance for loan losses represented 1.54% of total loans, down 6 bps from Mar 31, 2020.
Furthermore, a benefit to provision for loan and lease losses of $25.75 million was recorded against the provision expense of $76 million seen in the prior-year quarter.
The ratio of net charge-offs to annualized average loans came in at 0.10%, down 5 bps year over year.
Capital and Profitability Ratios
As of Mar 31, 2021, Tier 1 risk-based capital ratio was 12.55% compared with 11.60% as of Mar 31, 2020. Additionally, total risk-based capital ratio was 14.09% compared with the prior-year quarter’s 13.10%. Tangible common equity ratio was 7.85%, up from 7.67%.
Return on average assets was 1.31% in the reported quarter compared with the year-ago quarter’s 0.50%. As of Mar 31, 2021, return on average common stockholders' equity was 13.65%, up from 4.75%.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
At this time, Webster Financial has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Webster Financial has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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