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Webster Financial (WBS) Q3 Earnings Top, Stock Up 11.2%

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Shares of Webster Financial WBS rallied 11.23% in response to impressive third-quarter 2020 results, driven by solid mortgage banking revenues. Earnings per share of 75 cents beat the Zacks Consensus Estimate of 69 cents. However, the reported figure declined 25% from the prior-year quarter.

Higher fee income drove the results. Moreover, growth in loan and deposit balances as well as impressive capital ratios were positives. Elevated non-interest expenses and provision for loan losses, along with contracting net interest margin (NIM), acted as major headwinds. Also, decline in revenues on account of lower interest income affected the bank’s performance.

The company reported earnings applicable to common shareholders of $66.9 million, down from the prior-year quarter’s $91.4 million.

Revenues Decline, Expenses Rise, Loans & Deposits Improve

Webster Financial’s total revenues decreased 5.2% year over year to $294.4 million. Also, the top line missed the Zacks Consensus Estimate of $295.3 million.

Net interest income declined 8.8% year over year to $219.3 million.  Moreover, NIM contracted 61 basis points (bps) to 2.88%.

Non-interest income was $75.1 million, up 7.4% year over year. This rise mainly resulted from strong mortgage banking and other income.

Non-interest expenses of $184 million flared up 2.3% from the year-ago quarter. This upswing chiefly resulted from rise in almost all components except other costs.

Efficiency ratio (on a non-GAAP basis) came in at 59.99% compared with 56.60% as of Sep 30, 2019. A higher ratio indicates lower profitability.

The company’s total loans and leases as of Sep 30, 2020 were $21.9 billion, slightly up sequentially. Also, total deposits inched up 1.9% from the previous quarter to $26.9 billion.

Credit Quality: A Mixed Bag

Total non-performing assets were $167.3 million as of Sep 30, 2020, slightly up from the year-ago quarter. Moreover, allowance for loan losses represented 1.69% of total loans, up 62 bps from Sep 30, 2019. Also, the provision for loan and lease losses more than doubled to $22.8 million as of Sep 30, 2020.

Yet, the ratio of net charge-offs to annualized average loans came in at 0.21%, down 7 bps year over year.

Steady Capital and Profitability Ratios

As of Sep 30, 2020, Tier 1 risk-based capital ratio was 11.88% compared with 12.32% as of Sep 30, 2019. Additionally, total risk-based capital ratio came in at 13.47% compared with the prior-year quarter’s 13.68%. Tangible common equity ratio was 7.75%, down from 8.34%.

Return on average assets was 0.84% in the reported quarter compared with the year-ago quarter’s 1.27%. As of Sep 30, 2020, return on average common stockholders' equity came in at 8.8%, down from 12.36%.

Our Viewpoint

Webster Financial’s performance in the July-September quarter was impressive. Given the rise in loan and deposit balances, Webster Financial is well positioned for growth. Further, the company has a robust capital position. Nevertheless, decline in revenues on lower interest income was a major drag. Apart from this, mounting expenses and shrinking NIM might continue dampening its bottom-line growth in the near term.

Webster Financial Corporation Price, Consensus and EPS Surprise

Webster Financial Corporation Price, Consensus and EPS Surprise
Webster Financial Corporation Price, Consensus and EPS Surprise

Webster Financial Corporation price-consensus-eps-surprise-chart | Webster Financial Corporation Quote

Webster Financial currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


Performance of Other Banks

First Republic Bank FRC delivered a positive earnings surprise of 16.7% in the third quarter on solid top-line strength. Earnings per share of $1.61 outpaced the Zacks Consensus Estimate of $1.38. Additionally, the bottom line climbed 22.9% from the year-ago quarter. Results were supported by an increase in NII and fee income. Yet, higher expenses and elevated provisions were offsetting factors.

Regions Financial RF reported third-quarter 2020 adjusted earnings of 49 cents per share, surpassing the Zacks Consensus Estimate of 34 cents. Also, results compared favorably with the prior-year period earnings of 39 cents. Results were driven by higher revenues on increases in both NII and fee income. Furthermore, rise in deposit balances provided some respite. Notably, mortgage income and capital markets income were on an upswing. Nevertheless, higher provisions for credit losses and rise in expenses were undermining factors.

M&T Bank Corporation MTB came up with an earnings surprise of 5.3% on prudent cost management during the September-end quarter. Net operating earnings per share of $2.77 beat the Zacks Consensus Estimate of $2.63. The bottom line, however, compared unfavorably with the $3.50 per share reported in the year-ago quarter. The company’s results were driven by prudent expense management. Moreover, rise in loan and deposit balances highlighted a strong capital position. Nevertheless, revenues disappointed on lower rates and decline in fee income. Further, rise in provisions was an undermining factor.

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