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Webster Financial (WBS) Q1 Earnings & Revenues Miss Estimates

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Webster Financial (WBS - Free Report) reported first-quarter 2023 adjusted earnings per share of $1.49, which missed the Zacks Consensus Estimate of $1.56. The reported figure excluded items such as charges related to merger and balance sheet repositioning.

Results were significantly affected by lower non-interest income. However due to higher rates net interest income grew. Also, rising loan balance and lower expenses were major tailwinds.

WBS reported net income applicable to common shareholders of $216.8 million against the prior-year quarter’s loss of $20.2 million.

Revenues Increase & Expenses Decline

Webster Financial’s total revenues in the quarter climbed 33.7% year over year to $666 million. However, the top line lagged the Zacks Consensus Estimate of $704.2 million.

The NII increased 51% year over year to $595.3 million. Net interest margin was 3.66%, up 45 basis points.

Non-interest income was $70.8 million, down 32% year over year. The primary reason for this fall was a decrease in wealth and investment services as well as other income along with a loss on the sale of investment securities.

Non-interest expenses were $332.5 million, down 7.6% from the year-ago quarter. A decrease in compensation and benefits, technology and equipment, professional and outside services drove the fall.

The efficiency ratio (on a non-GAAP basis) came in at 41.64% compared with 48.73% as of Mar 31, 2022. A lower ratio indicates higher profitability.

Webster Financial’s total loans and leases as of Mar 31, 2023, were $50.9 billion, up 2.3%, sequentially. Also, total deposits were up 2.3% from the previous quarter to $55.3 billion.

Return on average assets was 1.22% in the reported quarter. As of Mar 31, 2023, return on average common stockholders' equity was 10.94%, However, the tangible common equity ratio was 7.15%, down from 8.26%.

Credit Quality Improves

Total non-performing assets were $186.6 million as of Mar 31, 2023, down 25.7% from the year-ago quarter’s level. In addition, allowance for loan losses represented 1.21% of total loans, having shrunk 10 bps from the level as of Mar 31, 2022.

The company recorded provision for credit losses of $46.7 million compared with $188.8 million seen in the prior-year quarter. However, the ratio of net charge-offs to annualized average loans came in at 0.20% compared with 0.10% reported in the year-ago quarter.

Capital Ratios Decrease

As of Mar 31, 2023, Tier 1 risk-based capital ratio was 10.91% compared with 12.05% as of Mar 31, 2022. Additionally, the total risk-based capital ratio was 12.94% compared with the prior-year quarter’s 14.41%.

Our Viewpoint

Webster Financial’s results reflect strong growth in NII backed by higher rates. The strong profitability ratio was another positive factor.

Webster Financial currently carries a Zacks Rank #3 (Hold). You can the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

U.S. Bancorp’s (USB - Free Report) first-quarter 2023 earnings per share (excluding merger and integration-related charges) of $1.16 handily beat the Zacks Consensus Estimate of $1.13 per share. It grew 17.2% from the prior-year quarter.

Results benefited from an increase in NII, supported by higher interest rates. However, a decline in non-interest income (largely on lower mortgage banking income) and higher expenses were the headwinds. Also, USB’s credit quality deteriorated in the reported quarter.

Citizens Financial Group (CFG - Free Report) reported first-quarter 2023 earnings per share of $1, missing the Zacks Consensus Estimate of $1.11. Nonetheless, the bottom line rose from 93 cents in the year-ago quarter.

CFG's results reflect NII growth on a rise in interest-earning assets. However, an escalation in expenses, lower non-interest income and a rise in provisions were the undermining factors.


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