Back to top

Image: Bigstock

Webster (WBS) Stock Declines 5.3% Despite Q4 Earnings Beat

Read MoreHide Full Article

Webster Financial (WBS - Free Report) reported fourth-quarter 2020 adjusted earnings per share of 99 cents, which surpassed the Zacks Consensus Estimate of 72 cents. The reported figure excluded noteworthy items such as charges related to strategic optimization initiatives.

Higher fee income drove the results. Moreover, growth in deposit balances as well as impressive capital ratios were positives. Also, the reserve release during the quarter was a tailwind.

However, elevated non-interest expenses, along with lower net interest margin (NIM), were key concerns. Also, decline in revenues on account of lower interest income affected the bank’s performance. Perhaps due to these concerns, the company’s shares lost 5.3% following the earnings release.

The company reported earnings applicable to common shareholders of $57.7 million, down from the prior-year quarter’s $88.1 million.

In full-year 2020, Webster Financial reported net income of $220.6 million or $2.35 per share compared with $382.7 million or $4.06 in 2019.

Revenues Decline, Expenses Rise, Deposits Improve

In 2020, the company reported revenues of $1.18 billion, which matched with the consensus estimate. However, the figure declined 5.1% year over year.

Webster Financial’s total revenues in the quarter decreased 2.8% year over year to $293.7 million. However, the top line surpassed the Zacks Consensus Estimate of $291.2 million.

Net interest income declined 6.2% year over year to $216.9 million.  Moreover, NIM contracted 44 basis points (bps) to 2.83%.

Non-interest income was $76.8 million, up 8.2% year over year. This rise mainly resulted from strong mortgage banking and other income.

Non-interest expenses of $219.5 million flared up 22.1% from the year-ago quarter. This upswing chiefly resulted from rise in almost all components except marketing, deposit insurance and other costs.

Efficiency ratio (on a non-GAAP basis) came in at 60.27% compared with 58.52% as of Dec 31, 2020. A higher ratio indicates lower profitability.

The company’s total loans and leases as of Dec 31, 2020 were $21.6 billion, slightly down sequentially. However, total deposits inched up 1.5% from the previous quarter to $27.3 billion.

Credit Quality: A Mixed Bag

Total non-performing assets were $170.3 million as of Dec 31, 2020, up 8.2% from the year-ago quarter. Moreover, allowance for loan losses represented 1.66% of total loans, up 62 bps from Dec 31, 2019. Also, a benefit to provision for loan and lease losses of $1 million were recorded compared with $6 million in the prior-year quarter.

Yet, the ratio of net charge-offs to annualized average loans came in at 0.17%, up 5 bps year over year.

Steady Capital and Profitability Ratios

As of Dec 31, 2020, Tier 1 risk-based capital ratio was 11.99% compared with 12.22% as of Dec 31, 2019. Additionally, total risk-based capital ratio was 13.59% compared with the prior-year quarter’s 13.55%. Tangible common equity ratio was 7.9%, down from 8.39%.

Return on average assets was 0.73% in the reported quarter compared with the year-ago quarter’s 1.19%. As of Dec 31, 2020, return on average common stockholders' equity was 7.51%, down from 11.6%.

Our Viewpoint

Webster Financial’s performance in the fourth quarter was decent. Given the rise in deposit balances, Webster Financial displays a strong liquidity profile. Further, the company has a robust capital position. Though, decline in revenues on lower interest income was a major drag, the company’s efforts to strengthen the HSA Bank segment reflect in rising fee income base.

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

BOK Financial (BOKF - Free Report) reported an earnings surprise of 11.1% for fourth-quarter 2020. Earnings per share of $2.21 handily surpassed the Zacks Consensus Estimate of $1.99. Further, the bottom line compares favorably with the prior-year quarter’s $1.56.

M&T Bank Corporation (MTB - Free Report) reported fourth-quarter 2020 earnings surprise of 19.6% on higher fee income. Net operating earnings per share of $3.54 beat the Zacks Consensus Estimate of $2.96. The bottom line, however, compares unfavorably with the $3.62 per share reported in the year-ago quarter.

Northern Trust Corporation (NTRS - Free Report) delivered fourth-quarter 2020 adjusted earnings per share of $1.49, missing the Zacks Consensus Estimate of $1.52, on lower revenues. Also, the reported figure declined 12.4% year over year.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.

Click here for the 6 trades >>

Published in