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Webster Financial (WBS) Stock Down 1.15% on Q3 Earnings Miss

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Webster Financial (WBS - Free Report) delivered third-quarter 2021 earnings per diluted share of $1.08, missing the Zacks Consensus Estimate of $1.09. The reported figure excluded noteworthy items such as charges related to merger and strategic optimization initiatives. However, including such items, earnings compared favorably with the 75 cents per share posted in the prior-year quarter.

Higher fee income and net interest income (NII) supported the company. Moreover, growth in loan and deposit balances as well as a lower cost base were positives.

However, a lower net interest margin (NIM) was the key concern. The company’s shares lost 1.15% following the earnings release most likely due to this concern.

The company reported earnings applicable to common shareholders (on GAAP basis) of $91.5 million or $1.01 per share, up from the prior-year quarter’s $50.7 million or 57 cents.

Revenues Increase, Expenses Decline, Loans and Deposits Improve

Webster Financial’s total revenues in the quarter climbed 6.5% year over year to $313.5 million. Moreover, the top line topped the Zacks Consensus Estimate of $294.82 million.

The NII increased 4.7% year over year to $229.7 million. Additionally, the NIM contracted 8 basis points (bps) to 2.8%.

Non-interest income was $83.8 million, up 11.6% year over year. This rise mainly resulted from higher fair value adjustments, loan related fees, deposit service fees, and wealth and investment service fees.

Non-interest expenses of $180.2 million dipped 2.1% from the year-ago quarter. Excluding merger and strategic initiative related charges, this downside chiefly resulted from the decrease in compensation and benefits in occupancy and in the reserve for unfunded lines.

Efficiency ratio (on a non-GAAP basis) came in at 54.84% compared with 59.99% as of Sep 30, 2020. A lower ratio indicates higher profitability.

The company’s total loans and leases as of Sep 30, 2021 were $21.58 billion, up marginally sequentially. Also, total deposits were up 4.1% from the previous quarter to $30 billion.

Credit Quality Improves

Total non-performing assets were $104.3 million as of Sep 30, 2021, down 37.8% from the year-ago quarter. In addition, allowance for loan losses represented 1.46% of total loans, having shrunk 23 bps from Sep 30, 2020.
Furthermore, a provision for credit losses of $7.8 million was recorded compared to the $22.8 million seen in the prior-year quarter.

The ratio of net charge-offs to annualized average loans came in at 0.02% compared with the year-ago quarter’s 0.21%.

Capital Ratios and Profitability Ratios Improve

As of Sep 30, 2021, Tier 1 risk-based capital ratio was 11.77% compared with 11.23% as of Sep 30, 2020. Additionally, total risk-based capital ratio was 13.79% compared with the prior-year quarter’s 13.47%.

Return on average assets was 1.1% in the reported quarter compared with the year-earlier quarter’s 0.84%. As of Sep 30, 2021, return on average common stockholders' equity was 11.61%, up from 8.8%.

However, Tangible common equity ratio was 8.12%, down from 8.19%.

Our Viewpoint

Webster Financial’s performance was decent during the July-September quarter. Given the rise in loan and deposit balances, the company displays a solid liquidity profile. Further, the company’s top line increased on an improving NII and non-interest income. Nonetheless, a shrinking NIM on lower interest income was a major drag.

Currently, Webster Financial 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

Bank of America’s (BAC - Free Report) third-quarter 2021 earnings of $1.03 per share handily beat the Zacks Consensus Estimate of 77 cents. The bottom line compared favorably with the 37 cents earned in the prior-year quarter.

PNC Financial (PNC - Free Report) pulled off a third-quarter earnings surprise of 42.4% on substantial reserve release. The adjusted earnings per share of $4.50 exceeded the Zacks Consensus Estimate of $3.16.

Large reserve releases, solid investment banking performance and modest rise in loan demand drove JPMorgan’s (JPM - Free Report) third-quarter 2021 earnings of $3.78 per share. The bottom line comfortably outpaced the Zacks Consensus Estimate of $3.05.