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Webster (WBS) Q1 Earnings Beat Estimates, Revenues Rise Y/Y

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Webster Financial (WBS - Free Report) reported first-quarter 2022 adjusted earnings per share of $1.24, which surpassed the Zacks Consensus Estimate of $1.16. The reported figure excluded merger-related expenses related to Sterling Bancorp.

Higher net interest income (NII) and fee income drove the results. Moreover, growth in loans and deposits balance was a positive. Evidently, shares of WBS were up 5.28% following the earnings release. However, lower net interest margin (NIM) and deteriorating profitability ratios were key concerns.

WBS reported net loss applicable to common shareholders of $20.2 million against the prior-year quarter’s net income of $106.1 million.

Revenues & Expenses Increase, Balance Sheet Improves

Webster Financial’s total revenues in the quarter climbed 65.8% year over year to $498.3 million. Moreover, the top line topped the Zacks Consensus Estimate of $485.9 million.

The NII increased 76% year over year to $394.2 million. However, the NIM contracted 29 basis points (bps) to 3.12%.

Non-interest income was $104 million, up 35.4% year over year. This rise mainly reflects the two months’ impact of the merger with Sterling Bancorp.

Non-interest expenses of $359.8 million jumped 91.4% from the year-ago quarter’s level. The rise was primarily due to $104.4 million net merger and strategic initiative charges.

The efficiency ratio (on a non-GAAP basis) came in at 48.73%, down from 58.46% as of Mar 31, 2021. A lower ratio indicates higher profitability.

Webster Financial’s total loans and leases as of Mar 31, 2022, were $43.5 billion, up 95.1%, sequentially. Total deposits were up 82.6% from the previous quarter’s level to $54.4 billion.

Credit Quality: Mixed Bag

Total non-performing assets were $251.2 million as of Mar 31, 2022, up 64.4% from the year-ago quarter’s level. A provision for credit losses of $188.8 million was recorded against a benefit of $25.8 million seen in the prior-year quarter. The ratio of net charge-offs to annualized average loans and leases was flat at 0.10% with the year-ago quarter’s level.

Allowance for credit losses on loans and leases represented 1.31% of total loans and leases, having shrunk 23 bps from the level as of Mar 31, 2021.

Capital Ratios Mixed, Profitability Ratios Deteriorate

As of Mar 31, 2022, Tier 1 risk-based capital ratio was 12.01% compared with 12.55% as of Mar 31, 2021.

The total risk-based capital ratio was 14.37% compared with the prior-year quarter’s 14.08%.

The return on average assets was a negative 0.12% in the reported quarter against the year-earlier quarter’s 1.31%. As of Mar 31, 2022, the return on average common stockholders' equity was a negative 1.25% against 13.65% in the year-earlier quarter.

The tangible common equity ratio was 8.26%, up from 7.85% in the year-ago quarter.

Our Viewpoint

Webster Financial’s performance in the first quarter was impressive. Given the rise in loan balances, WBS displays a solid liquidity profile. Further, its top line increased on an improving NII and non-interest income. However, a declining NIM due to low-interest rates was a major drag.

Webster Financial currently 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

UMB Financial (UMBF - Free Report) reported first-quarter 2022 net operating income per share of $2.17, surpassing the Zacks Consensus Estimate of $1.65. The bottom line also compares favorably with the prior-year quarter’s earnings of $1.91.

UMBF’s results were supported by higher revenues, driven by an increase in NII and fee income. A solid balance sheet position was another positive. Increased expenses and deteriorating credit quality were headwinds. Capital ratios witnessed a decline.

Northern Trust Corporation (NTRS - Free Report) delivered an earnings beat of 6.63% for first-quarter 2022. Earnings per share of $1.77 surpassed the Zacks Consensus Estimate of $1.66. The bottom line improved 4% year over year.

Higher revenues, aided by a rise in fee income and NII, were a driving factor for NTRS. Most credit metrics also marked significant improvements. However, a rising expense base and weak capital ratios were headwinds.

UBS Group AG (UBS - Free Report) reported first-quarter 2022 net profit attributable to shareholders of $2.1 billion, up 17.1% from the prior-year quarter’s level.

UBS’ performance was driven by a 10% rise in NII from the prior-year quarter’s level. A strong capital position was a tailwind.