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Webster Financial (WBS) Rides on Acquisitions Despite High Debt
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Webster Financial Corporation (WBS - Free Report) has grown inorganically through numerous acquisitions, which have also strengthened its balance sheet. Yet, an unsound liquidity position makes it vulnerable to default interest and debt repayments.
In February 2022, WBS completed its merger with Bend Financial, which will accelerate the digital transformation of HSA Bank. In January, it acquired Sterling Bancorp in an all-stock deal, making it one of the largest commercial banks in the Northeast. The combined company is expected to enjoy loan growth and a best-in-class deposit franchise.
The acquisitions of Bend Financial and Sterling have driven health savings accounts (HSA) deposits, thereby increasing total deposits. The company has also been witnessing impressive loan growth. We believe that deposit and loan balances, supporting the company’s strong capital position, are poised to grow further from an improving economic backdrop. Management expects loan growth of 8-10% for 2022, following the completion of the Sterling merger, with continued loan demand in the key segments.
A rise in net interest income and fee income are also poised to drive revenue growth for the company in the upcoming period. Also, Webster Financial's merger deal with Sterling has expanded selected commercial lending portfolios, HSA Bank and digital banking offerings. This has helped in the diversification and the unlocking of revenue-growth opportunities.
Webster Financial is making efforts to drive cost savings. The consolidation of banking centers and corporate facilities, process automation, ancillary spend reduction, and other organizational actions have aided the firm in reducing its operating expenses. Webster Financial intends to achieve the goal of $60 million each in net reduction in operating expenses in 2022 and 2023 via the Sterling merger.
However, Webster Financial’s net interest margin (NIM) witnessed a downtrend from 2019 through first-quarter 2022. This was mainly due to the near-zero interest rate environment. Though the Fed has increased the interest rates and signaled more such hikes, the overall low-interest-rate environment is expected to keep NIM growth subdued.
As of Mar 31, 2022, Webster Financial held a debt level (comprising federal home loan bank advances and long-term debt) of $1.1 billion, while cash and due from banks stood at $240.4 million. Thus, Webster Financial’s unsound liquidity position makes it more vulnerable to default interest and debt repayments if the economic situation worsens.
The loan portfolio of Webster Financial mostly comprises commercial and commercial real-estate loans. Such high exposure can be risky for the company if, beside the competitive market, the economy poses unprecedented challenges.
Currently, WBS carries a Zacks Rank #3 (Hold). Over the past six months, shares of the company have declined 21.5%, wider than the 17.1% fall recorded by the industry.
Independent Bank’s Zacks Consensus Estimate for current-year earnings has been revised upward over the past 30 days. Over the past six months, shares of IBCP have declined 18.9%.
Civista Bancshares also witnessed an upward earnings estimate revision for 2022 over the past 30 days. Over the past six months, shares of CIVB have declined 18%.
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Webster Financial (WBS) Rides on Acquisitions Despite High Debt
Webster Financial Corporation (WBS - Free Report) has grown inorganically through numerous acquisitions, which have also strengthened its balance sheet. Yet, an unsound liquidity position makes it vulnerable to default interest and debt repayments.
In February 2022, WBS completed its merger with Bend Financial, which will accelerate the digital transformation of HSA Bank. In January, it acquired Sterling Bancorp in an all-stock deal, making it one of the largest commercial banks in the Northeast. The combined company is expected to enjoy loan growth and a best-in-class deposit franchise.
The acquisitions of Bend Financial and Sterling have driven health savings accounts (HSA) deposits, thereby increasing total deposits. The company has also been witnessing impressive loan growth. We believe that deposit and loan balances, supporting the company’s strong capital position, are poised to grow further from an improving economic backdrop. Management expects loan growth of 8-10% for 2022, following the completion of the Sterling merger, with continued loan demand in the key segments.
A rise in net interest income and fee income are also poised to drive revenue growth for the company in the upcoming period. Also, Webster Financial's merger deal with Sterling has expanded selected commercial lending portfolios, HSA Bank and digital banking offerings. This has helped in the diversification and the unlocking of revenue-growth opportunities.
Webster Financial is making efforts to drive cost savings. The consolidation of banking centers and corporate facilities, process automation, ancillary spend reduction, and other organizational actions have aided the firm in reducing its operating expenses. Webster Financial intends to achieve the goal of $60 million each in net reduction in operating expenses in 2022 and 2023 via the Sterling merger.
However, Webster Financial’s net interest margin (NIM) witnessed a downtrend from 2019 through first-quarter 2022. This was mainly due to the near-zero interest rate environment. Though the Fed has increased the interest rates and signaled more such hikes, the overall low-interest-rate environment is expected to keep NIM growth subdued.
As of Mar 31, 2022, Webster Financial held a debt level (comprising federal home loan bank advances and long-term debt) of $1.1 billion, while cash and due from banks stood at $240.4 million. Thus, Webster Financial’s unsound liquidity position makes it more vulnerable to default interest and debt repayments if the economic situation worsens.
The loan portfolio of Webster Financial mostly comprises commercial and commercial real-estate loans. Such high exposure can be risky for the company if, beside the competitive market, the economy poses unprecedented challenges.
Currently, WBS carries a Zacks Rank #3 (Hold). Over the past six months, shares of the company have declined 21.5%, wider than the 17.1% fall recorded by the industry.
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Stocks That Warrant a Look
A couple of better-ranked stocks from the banking space are Independent Bank Corporation (IBCP - Free Report) and Civista Bancshares, Inc. (CIVB - Free Report) . IBCP and CIVB currently carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Independent Bank’s Zacks Consensus Estimate for current-year earnings has been revised upward over the past 30 days. Over the past six months, shares of IBCP have declined 18.9%.
Civista Bancshares also witnessed an upward earnings estimate revision for 2022 over the past 30 days. Over the past six months, shares of CIVB have declined 18%.