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Webster Financial (WBS) Rides on Buyouts Despite High Debt
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Webster Financial Corporation (WBS - Free Report) has been growing inorganically, which has also strengthened its balance sheet. Yet, the high debt level makes it vulnerable amid an economic downturn.
In December 2022, WBS announced that its principal bank subsidiary Webster Bank, N.A. has signed a definitive agreement to acquire StoneCastle Insured Sweep, LLC. StoneCastle Insured Sweep does business as interLINK and is a subsidiary of StoneCastle Partners, LLC. The acquisition of the software platform offers access to core deposit funding and is in line with the company’s efforts to diversify funding capabilities and add another technology-enabled platform to its system.
In November 2022, HSA Bank acquired around 4,800 HSAs, with $15.5 million in deposits from Inland Bank and Trust. In February, Webster Financial acquired Bend Financial, accelerating digital transformation for HSA Bank. In January, it acquired Sterling Bancorp in an all-stock deal valued at $5.2 billion, making it one of the largest commercial banks in the Northeast United States. The combined company enjoys loan growth and a best-in-class deposit franchise.
These deals have driven health savings account (HSA) deposits, thereby increasing total deposits. WBS has also been witnessing impressive loan growth. Management expects fourth-quarter loan growth to be 2-3% sequentially, with continued loan demand in key segments.
An increase in net interest income and fee income are also poised to drive revenue growth for Webster Financial in the upcoming period. Also, rising rates will aid revenue growth.
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 lowered operating expenses. WBS intends to achieve the goal of $60 million each in a net reduction in operating expenses in 2022 via the Sterling merger.
However, as of Sep 30, 2022, Webster Financial had total long-term borrowings of $1.07 billion, which has been volatile over the past few years. The current time-interest-earned ratio of 12 declined sequentially, whereas cash and due from banks of $286.5 million witnessed a volatile trend over the past few years. Thus, the company’s unsound liquidity position makes it 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, besides the competitive market, the economy poses unprecedented challenges.
Currently, WBS carries a Zacks Rank #4 (Sell). Over the past six months, shares of the company have gained 11.1% against the 1.4% fall recorded by the industry.
The consensus estimate for CF Bankshares’s current-year earnings has been revised 1% upward over the past 60 days. Over the past six months, CFBK’s share price has increased 2.3%.
Mid Penn Bancorp’s 2022 earnings estimates have been revised 7.7% upward over the past 60 days. MPB’s shares have gained 12.7% over the past six months.
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Webster Financial (WBS) Rides on Buyouts Despite High Debt
Webster Financial Corporation (WBS - Free Report) has been growing inorganically, which has also strengthened its balance sheet. Yet, the high debt level makes it vulnerable amid an economic downturn.
In December 2022, WBS announced that its principal bank subsidiary Webster Bank, N.A. has signed a definitive agreement to acquire StoneCastle Insured Sweep, LLC. StoneCastle Insured Sweep does business as interLINK and is a subsidiary of StoneCastle Partners, LLC. The acquisition of the software platform offers access to core deposit funding and is in line with the company’s efforts to diversify funding capabilities and add another technology-enabled platform to its system.
In November 2022, HSA Bank acquired around 4,800 HSAs, with $15.5 million in deposits from Inland Bank and Trust. In February, Webster Financial acquired Bend Financial, accelerating digital transformation for HSA Bank. In January, it acquired Sterling Bancorp in an all-stock deal valued at $5.2 billion, making it one of the largest commercial banks in the Northeast United States. The combined company enjoys loan growth and a best-in-class deposit franchise.
These deals have driven health savings account (HSA) deposits, thereby increasing total deposits. WBS has also been witnessing impressive loan growth. Management expects fourth-quarter loan growth to be 2-3% sequentially, with continued loan demand in key segments.
An increase in net interest income and fee income are also poised to drive revenue growth for Webster Financial in the upcoming period. Also, rising rates will aid revenue growth.
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 lowered operating expenses. WBS intends to achieve the goal of $60 million each in a net reduction in operating expenses in 2022 via the Sterling merger.
However, as of Sep 30, 2022, Webster Financial had total long-term borrowings of $1.07 billion, which has been volatile over the past few years. The current time-interest-earned ratio of 12 declined sequentially, whereas cash and due from banks of $286.5 million witnessed a volatile trend over the past few years. Thus, the company’s unsound liquidity position makes it 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, besides the competitive market, the economy poses unprecedented challenges.
Currently, WBS carries a Zacks Rank #4 (Sell). Over the past six months, shares of the company have gained 11.1% against the 1.4% fall recorded by the industry.
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Bank Stocks That Warrant a Look
A couple of bank stocks worth a look are CF Bankshares Inc. (CFBK - Free Report) and Mid Penn Bancorp (MPB - Free Report) . CFBK currently sports a Zacks Rank #1 (Strong Buy) and MPB carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The consensus estimate for CF Bankshares’s current-year earnings has been revised 1% upward over the past 60 days. Over the past six months, CFBK’s share price has increased 2.3%.
Mid Penn Bancorp’s 2022 earnings estimates have been revised 7.7% upward over the past 60 days. MPB’s shares have gained 12.7% over the past six months.