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Webster Financial (WBS) Stock Up 3.7% on Q4 Earnings Beat

Zacks Equity Research

Shares of Webster Financial WBS climbed 3.7% after the company delivered a positive earnings surprise of 3.1% in fourth-quarter 2018. Adjusted earnings per share of $1.01 surpassed the Zacks Consensus Estimate of 98 cents.

Results reflected growth in revenues with support from higher loans and improving interest margin. Also, the company’s strong capital position was a tailwind. However, higher non-interest expenses remained an undermining factor.

After considering several non-recurring items, the company reported earnings applicable to common shareholders of $98.8 million or $1.05 per share, up from $69.9 million or 73 cents in the prior-year quarter.

For full-year 2018, Webster Financial reported net income available to common shareholders of $360.4 million or $3.81 per share compared with $255.4 million or $2.67 per share as of Dec 31, 2017.

Revenue Rise Offsets Higher Expenses, Loans Increase

Webster Financial’s total revenues in the quarter rose 13.5% year over year to $310.3 million. Also, the top line exceeded the Zacks Consensus Estimate of $305.4 million.

For 2018, the company reported revenues of $1.19 billion, up 12.6%. Further, it came in line with the consensus estimate.

Net interest income grew 15.7% year over year to $237.1 million. Moreover, net interest margin expanded 33 basis points (bps) to 3.66%.

Non-interest income was around $73.2 million, up nearly 10.9% year over year. The upside was primarily prompted by a rise in almost all components of non-interest income. These were however, partially countered by a fall in mortgage banking revenues.

Non-interest expenses of $174.8 million escalated 2.2% from year-ago quarter. The rise was mainly due to higher compensation and benefits expenses, technology and equipment along with other expenses, partially offset by a fall in marketing and occupancy costs.

Efficiency ratio (on a non-GAAP basis) came in at 56.19% compared with 59.48% as of Sep 30, 2017. A lower ratio indicates improved profitability.   

The company’s total loans and leases as of Dec 31 2018 were $18.47 billion, up 0.8% sequentially. However, total deposits decreased 0.6% from the prior quarter to $21.9 billion.  

Credit Quality: A Mixed Bag

Total nonperforming assets were $161.6 million, up 21.8% from the year-ago quarter. Further, allowance for loan losses represented 1.15% of total loans as of Dec 31, 2018, up 1 bp from Dec 31, 2017.

However, the provision for loan and lease losses declined 23% to $10 million. Also, the ratio of net charge-offs to annualized average loans came in at 0.21%, down 13 bps year over year.

Improved Capital & Profitability Ratios

As of Dec 31, 2018, Tier 1 risk-based capital ratio was 12.17% compared with 11.91% as of Dec 31, 2017. Also, total risk-based capital ratio came in at 13.63% compared with 13.40% in the prior-year quarter. Tangible common equity ratio was 8.05%, up from 7.67% as of Dec 31, 2017.

Return on average assets was 1.44% in the reported quarter compared with 1.05% in the year-ago quarter. As of Dec 31, 2018, return on average common stockholders' equity came in at 14.31%, up from 10.66% as of Dec 31, 2017.

Our Viewpoint

Webster Financial put up a decent performance in fourth-quarter 2018, reflected by improved revenues and a strong loan balance. Its solid capital position will boost growth initiatives. Also, its efforts to expand HSA Bank segment bode well for the long term. However, increase in expenses deters bottom-line growth to some extent.

Webster Financial Corporation Price, Consensus and EPS Surprise

Webster Financial Corporation Price, Consensus and EPS Surprise | 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

Huntington Bancshares HBAN reported fourth-quarter 2018 earnings per share of 29 cents, which lagged the Zacks Consensus Estimate of 31 cents. However, the figure was up 12% from the prior-year quarter’s adjusted earnings.

BankUnited, Inc.’s BKU fourth-quarter 2018 earnings per share of 50 cents missed the Zacks Consensus Estimate of 60 cents. The bottom line also compares unfavorably with the prior-year quarter’s adjusted figure of 86 cents per share.

BancorpSouth BXS reported fourth-quarter 2018 net operating earnings of 57 cents per share, surpassing the Zacks Consensus Estimate of 54 cents. Also, the bottom line increased 39% from the prior-year quarter.

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