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Webster Financial (WBS) Up 0.9% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Webster Financial (WBS - Free Report) . Shares have added about 0.9% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

Webster Financial Q4 Earnings Beat

Webster Financial 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.

Outlook

First-quarter 2019

Management expects average loans to be up around 1% on a sequential basis.

The average earnings assets are expected to be up about 1% sequentially.

NIM is expected to expand 7-9 bps sequentially.

NII is anticipated to be up $4-$6 million. Non-interest income will likely be down between $3 million and $4 million.

Management expects provision for loan losses to increase in the first quarter, considering loan growth, portfolio mix and portfolio quality.

Efficiency ratio is expected to be below 58%.

Management expects the tax rate on a non-FTE basis to be around 21%.

The average diluted share count is estimated to be about 92 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, Webster Financial has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Webster Financial has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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