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Webster Financial (WBS) Declines 2.9% Despite Q3 Earnings Beat

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Webster Financial (WBS - Free Report) reported third-quarter 2023 adjusted earnings per share of $1.55, which surpassed the Zacks Consensus Estimate of $1.50. The figure excludes 27 cents of charges related to the merger with Sterling Bancorp on Jan 31, 2022.

Results were positively impacted by an improvement in net interest income (NII) due to higher rates. However, elevated expenses and lower non-interest income created a hindrance. Probably because of these negatives, shares of the company lost 2.9% between Oct 18 and Oct 20 closing hours.

WBS reported net income applicable to common shareholders of $222.3 million, down 3.3% from the prior-year quarter.

Revenues & Expenses Increase

Webster Financial’s total revenues in the quarter climbed 1.9% year over year to $677.5 million. However, the top line lagged the Zacks Consensus Estimate of $691 million.

NII increased 6.6% year over year to $587.1 million. The net interest margin was 3.49%, down 5 basis points (bps).

Non-interest income was $90.4 million, down 20.5% year over year. The major reason for this fall was a decrease in all the components of non-interest income.

Non-interest expenses were $362.6 million, up 9.8% from the year-ago quarter. A rise was due to the increase in almost all the components of non-interest expenses, except occupancy costs and loan workout expenses.

The efficiency ratio (on a non-GAAP basis) was 41.75% compared with 41.17% in the prior-year quarter. A rise in the efficiency ratio indicates a deterioration in profitability.

Webster Financial’s total loans and leases as of Sep 30, 2023, were $50.08 billion, down 3% sequentially. Also, total deposits were up 2.7% from the previous quarter to $60.33 billion.

Credit Quality: A Mixed Bag

Total non-performing assets were $218.4 million, as of Sep 30, 2023, up 3.2% from the year-ago quarter’s level. In addition, allowance for loan losses represented 1.27% of the total loans, having jumped 7 bps on a year-over-year basis.

However, the company recorded a provision for credit losses of $36.5 million, which almost remained flat from the provision recorded in the prior-year quarter. Also, the ratio of net charge-offs to annualized average loans came in at 0.23% compared with the 0.25% reported in the year-ago quarter.

Capital Ratios Improve, Profitability Ratios Decrease

As of Sep 30, 2023, the Tier 1 risk-based capital ratio was 11.67% compared with 11.35% as of Sep 30, 2022. Additionally, the total risk-based capital ratio was 13.82% compared with the prior-year quarter’s 13.38%.

Return on average assets was 1.23% in the reported quarter, down from 1.38% in the prior-year quarter. As of Sep 30, 2023, the return on average common stockholders' equity was 11%, down from 11.78% in the prior-year quarter. Also, the tangible common equity ratio was 7.22%, down from 7.27%.

Our Viewpoint

Webster Financial’s results reflect strong growth in NII, backed by higher rates. The improving capital ratios were other positives. However, higher expenses and a fall in fee income are concerning.

Webster Financial currently carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Banks

Associated Banc-Corp (ASB - Free Report) reported third-quarter 2023 earnings of 53 cents per share that met the Zacks Consensus Estimate. The bottom line declined 14.5% from the prior-year quarter.

In the reported quarter, ASB recorded a decline in NII and non-interest income. Also, expenses increased marginally, which, along with higher provisions, was a negative. However, a sequential rise in loan balances aided the results to some extent.

Bank OZK’s (OZK - Free Report) third-quarter 2023 earnings per share of $1.49 beat the Zacks Consensus Estimate of $1.44. The bottom line reflects a rise of 38% from the year-earlier quarter.

Results were positively impacted by an improvement in NII, driven by higher rates and robust loan and deposit balances. However, rising expenses, a decline in non-interest income and an increase in provision for credit losses were concerns.

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