A month has gone by since the last earnings report for Webster Financial (WBS - Free Report) . Shares have added about 0.3% 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 drivers.
Webster Financial Q2 Earnings Beat Estimates, Costs Up
Webster Financial reported adjusted earnings per share of 61 cents in second-quarter 2020, beating the Zacks Consensus Estimate of 54 cents. The reported figure excluded discrete negative adjustment related to customer derivatives.
Higher non-interest expenses and provision for loan losses, along with a shrinking NIM, acted as major headwinds. Nonetheless, growth in loan and deposit balances as well as impressive capital ratios were positives.
The company reported earnings applicable to common shareholders of $50.7 million, down from the prior-year quarter’s $96.2 million.
Revenues Decline, Expenses Rise, Loans & Deposits Improve
Webster Financial’s total revenues declined 22.7% year over year to $284.5 million. Moreover, the top-line figure missed the Zacks Consensus Estimate of $298.7 million.
Net interest income slid 7.2% year over year to $224.4 million. Moreover, NIM shrunk 64 basis points (bps) to 2.99%.
Non-interest income was $60.1 million, down 20.8% year over year. This fall resulted from lower other income and deposit service fees, partly offset by an increase in mortgage banking activities.
Non-interest expenses of $176.6 million dipped 2.3% from the year-ago quarter. The decline mainly resulted from fall in all components except for technology expenses and compensation and benefits due to annual merit increases.
Efficiency ratio (on a non-GAAP basis) was 60.0% compared with 56.09% as of Jun 30, 2019. A higher ratio indicates lower profitability.
The company’s total loans and leases as of Jun 30, 2020, were $21.8 billion, up 4.3% sequentially. Also, total deposits increased 7.8% from the previous quarter to $26.4 billion.
Credit Quality Deteriorates
Total non-performing assets were $178.4 million as of Jun 30, 2020, up 16.4% from the year-ago quarter. In addition, the ratio of net charge-offs to annual average loans was 0.30%, down 6 bps year over year. Also, the provision for loan and lease losses increased to $40 million as of Jun 30, 2020, compared with the prior year’s $11.9 million.
Moreover, allowance for loan losses represented 1.64% of total loans, up 54 bps from Jun 30, 2019.
Capital & Profitability Ratios Deteriorate
As of Jun 30, 2020, Tier 1 risk-based capital ratio was 11.84% compared with 12.09% as of Jun 30, 2019. Additionally, total risk-based capital ratio was 13.44% compared with the prior-year quarter’s 13.48%. Tangible common equity ratio was 7.69% compared with the year-ago figure of 8.31%.
Return on average assets was 0.65% in the reported quarter compared with the year-ago quarter’s 1.38%. As of Jun 30, 2020, return on average common stockholders' equity came in at 6.79%, down from 13.47% year over year.
Management expects continued pressure on credit quality as economic conditions remains less favorable, and anticipates the continuation of a challenging business environment due to the pandemic.
Management has reiterated its target of generating returns in excess of estimated 10% cost of capital over the medium and long term.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month. The consensus estimate has shifted -6.19% due to these changes.
Currently, Webster Financial has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Webster Financial has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.