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Webster Financial (WBS) Tops Q2 Earnings & Revenue Estimates

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Shares of Webster Financial WBS climbed 2% after the company delivered a positive earnings surprise of 5.7% in second-quarter 2018. Adjusted earnings per share of 92 cents surpassed the Zacks Consensus Estimate of 87 cents.

Results reflected growth in revenues with support from higher loans and eased margin pressure. Also, 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 $79.5 million or 86 cents per share, up from $59.5 million or 64 cents per share in the prior-year quarter.

Revenue Growth Offsets Higher Expenses, Loans Increase

Webster Financial’s total revenues in the quarter rose 11.8% from the prior-year quarter to $293.4 million. Also, it surpassed the Zacks Consensus Estimate was $292.1 million.

Net interest income grew 13.8% year over year to $225 million. Moreover, net interest margin increased 30 basis points (bps) from the year-ago quarter to 3.57%.

Non-interest income was around $68.4 million, up nearly 5.9% year over year. The rise was primarily prompted by higher deposit service fees, wealth and investment fees and other income. These were, however, partially offset by a fall in mortgage banking revenues.

Non-interest expenses of $180.5 million climbed 9.8% from the prior-year quarter. The rise was mainly due to $7.2 million charge related to an accrual for deposit insurance assessments prior to 2018. Excluding this, costs rose 5.4% year over year on higher compensation and benefits expenses along with technology and equipment related costs.

Efficiency ratio (on a non-GAAP basis) came in at 57.78% compared with 60.65% as of Jun 30, 2017. A lower ratio indicates improved profitability.   

The company’s total loans and leases as of Jun 30 2018 were $18 billion, up 1.1% sequentially. However, total deposits down slightly from the prior month to $21.3 billion.  

Credit Quality: A Mixed Bag

Total nonperforming assets were $146 million, down 14.3% from $170.4 million in the year-ago quarter. Further, allowance for loan losses represented 1.15% of total loans as of Jun 30, 2018 compared with 1.16% as of Jun 30, 2017.

However, the provision for loan and lease losses rose 44.8% from the year-ago quarter to $10.5 million. Also, the ratio of net charge-offs to annualized average loans came in at 0.19%, up 3 bps year over year.

Improved Capital & Profitability Ratios

As of Jun 30, 2018, Tier 1 risk-based capital ratio was 11.77% compared with 11.51% as of Jun 30, 2017. Also, total risk-based capital ratio came in at 13.25% compared with 13.02% in the prior-year quarter. Tangible common equity ratio was 7.75%, up from 7.47% as of Jun 30, 2017.

Return on average assets was 1.22% in the reported quarter compared with 0.94% in the prior-year quarter. As of Jun 30, 2018, return on average common stockholders' equity came in at 12.22%, up from 9.63% as of Jun 30, 2017.

Our Viewpoint

Webster Financial reported strong quarterly results as reflected by improved revenues and loan balance. Its strong capital position keeps it well poised to undertake 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 #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Fifth Third Bancorp FITB delivered a notable positive earnings surprise of 10.5% in second-quarter 2018. Adjusted earnings per share of 63 cents surpassed the Zacks Consensus Estimate of 57 cents. However, including certain one-time items, the bottom line came in at 80 cents, surging 78% year over year.

BancorpSouth BXS reported second-quarter 2018 operating earnings of 56 cents per share, beating the Zacks Consensus Estimate by a penny. Also, the bottom line compared favorably with the year-ago quarter earnings of 41 cents.

Reflecting top-line strength and lower provisions, U.S. Bancorp’s USB second-quarter 2018 earnings per share of $1.02 outpaced the Zacks Consensus Estimate by a penny. Also, results came ahead of the prior-year quarter earnings of 85 cents.

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