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Webster Financial (WBS) Stock Down 5.3% on Q4 Earnings Miss

Zacks Equity Research

Shares of Webster Financial WBS tanked 5.3% in response to fourth-quarter 2019 results. Earnings per share of 96 cents lagged the Zacks Consensus Estimate by a penny. Also, the reported figure declined 8.6% from the prior-year quarter.

Higher 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 results. However, growth in loan and deposit balances as well as impressive capital ratios were positives. Improvement in credit quality came as a tailwind.

The company reported earnings applicable to common shareholders of $88.1 million, down from the prior-year quarter’s $96.7 million.

For full-year 2019, Webster Financial reported net income of $382.7 million or $4.06 per share compared with $360.4 million or $3.81 in 2018.

Revenues Decline, Expenses Rise, Loans & Deposits Improve

Webster Financial’s total revenues decreased 2.6% year over year to $302.2 million. However, the top line missed the Zacks Consensus Estimate of $308.7 million.

In 2019, the company reported revenues of $1.24 billion, which lagged the consensus estimate of $1.25 billion. However, the figure jumped 4.3% year over year.

Net interest income declined 2.5% year over year to $231.3 million.  Moreover, NIM contracted 39 basis points (bps) to 3.27%.

Non-interest income was $70.9 million, down 3.1% year over year. The fall mainly resulted from decline other income.

Non-interest expenses of $179.7 million inched up 2.8% from the year-ago quarter. This upswing mainly resulted from rise in all components except marketing and professional services costs.

Efficiency ratio (on a non-GAAP basis) came in at 58.52% compared with 56.19% as of Dec 31, 2018. A higher ratio indicates lower profitability.

The company’s total loans and leases as of Dec 31, 2019 were $20 billion, up 2.5% sequentially. Also, total deposits increased marginally from the previous quarter to $23.3 billion.

Credit Quality Improves

Total non-performing assets were $157.4 million as of Dec 31, 2019, down 2.6% from the year-ago quarter. In addition, the ratio of net charge-offs to annualized average loans came in at 0.12%, down 9 bps year over year. Also, the provision for loan and lease losses decreased 40% to $6 million as of Dec 31, 2019.

Moreover, allowance for loan losses represented 1.04% of total loans, down 11 bps from Dec 31, 2018.

Improved Capital Ratios, Decline in Profitability Ratios

As of Dec 31, 2019, Tier 1 risk-based capital ratio was 12.23% compared with 12.16% as of Dec 31, 2018. Additionally, total risk-based capital ratio came in at 13.55% compared with the prior-year quarter’s 13.63%. Tangible common equity ratio was 8.39%, up from 8.05%.

Return on average assets was 1.19% in the reported quarter compared with the year-ago quarter’s 1.44%. As of Dec 31, 2019, return on average common stockholders' equity came in at 11.6%, down from 14.31%.

Our Viewpoint

Webster Financial’s performance in the fourth quarter was disappointing. Decline in revenues on account of lower interest income was a major drag. Mounting expenses and falling NIM might continue to dampen its bottom-line growth in the near term. Nonetheless, given the rise in loan and deposit balances, Webster Financial remains well positioned for growth. Further, the company has a robust capital position.

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

KeyCorp’s KEY fourth-quarter 2019 adjusted earnings of 48 cents per share were in line the Zacks Consensus Estimate. Also, the figure was on par with the prior-year quarter level.

Texas Capital Bancshares Inc. TCBI reported adjusted earnings per share of $1.44 in fourth-quarter 2019, lagging the Zacks Consensus Estimate of $1.55. However, results compare favorably with the prior-year quarter’s $1.38.

BancorpSouth Bank BXS delivered positive earnings surprise of 8.3% in fourth-quarter 2019 on higher interest income. Net operating earnings of 65 cents per share beat the Zacks Consensus Estimate of 60 cents. Also, the bottom line increased 14% from the prior-year quarter.

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