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Webster Financial (WBS) Rides on Top-Line Growth Amid Debt Woes
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Webster Financial Corporation’s (WBS - Free Report) balance sheet strength, rising net interest income (NII) and diversified fee income sources, fueled by strategic acquisitions, aid its growth prospects. However, high debt and liquidity concerns make capital distribution unsustainable. Commercial loan concentration remains a challenge.
Webster Financial’s deposits and loans witnessed a four-year (2019-2023) compounded annual growth rate (CAGR) of 27.1% and 26.1%, respectively. In January 2024, it acquired Ametros Financial Corp. to diversify funding capabilities by integrating its low-cost and long-duration deposits. Similarly, in the past, strategic buyouts such as interLINK, Bend Financial and Sterling Bancorp drove total deposits higher. Such inorganic growth initiatives have strengthened the company’s balance sheet.
Management expects a robust loan pipeline to help counter the challenging operating backdrop for loan demand. It projects loans and deposits to grow in the range of 5-7% in 2024.
Webster Financial witnessed an impressive revenue growth trajectory. NII and non-interest income saw a CAGR of 25.1% and 2.5%, respectively, over the last four years (2019-2023). Decent loan growth is expected to support NII growth in the upcoming quarters, though an increase in funding cost will weigh on it. Further, management expects net interest margin (NIM) in the first quarter of 2024 to grow by 3 basis points on the back of forecast originations and repositioning efforts. Past acquisition synergies have expanded and diversified the company’s revenue growth opportunities.
In the past six months, shares of this Zacks Rank #3 (Hold) company have gained 18% compared with the industry's 5.1% rise.
Image Source: Zacks Investment Research
However, high debt remains a challenge for the company. As of Dec 31, 2023, Webster Financial’s total debt (comprising long-term debt and federal home loan bank advances) was $3.41 billion, whereas cash and due from banks as well as interest-bearing deposits aggregated to $1.72 billion. Cash and due from banks have witnessed a volatile trend over the past few years. Thus, WBS is unlikely to meet its debt obligations if the economic situation deteriorates.
Webster Financial’s capital distribution activities remain another concern. It last hiked its dividend by 21% in April 2019. The company repurchased 2.67 million shares at a weighted average price of $40.49 per share in 2023. As of Dec 31, 2023, $293.4 million worth of shares remained under the current authorization. Though management expects to engage in capital distribution during the second half of 2024, low liquidity levels make the capital distribution plans seem unsustainable in the future.
As of Dec 31, 2023, WBS's loan portfolio comprised more than 80% of commercial loans (including commercial non-mortgage and commercial real estate loans). Amid the rapidly changing macroeconomic backdrop, commercial lending is likely to be strained. Thus, a concentrated loan portfolio is likely to put some pressure on the company’s financials in the event of an economic deterioration.
Image: Shutterstock
Webster Financial (WBS) Rides on Top-Line Growth Amid Debt Woes
Webster Financial Corporation’s (WBS - Free Report) balance sheet strength, rising net interest income (NII) and diversified fee income sources, fueled by strategic acquisitions, aid its growth prospects. However, high debt and liquidity concerns make capital distribution unsustainable. Commercial loan concentration remains a challenge.
Webster Financial’s deposits and loans witnessed a four-year (2019-2023) compounded annual growth rate (CAGR) of 27.1% and 26.1%, respectively. In January 2024, it acquired Ametros Financial Corp. to diversify funding capabilities by integrating its low-cost and long-duration deposits. Similarly, in the past, strategic buyouts such as interLINK, Bend Financial and Sterling Bancorp drove total deposits higher. Such inorganic growth initiatives have strengthened the company’s balance sheet.
Management expects a robust loan pipeline to help counter the challenging operating backdrop for loan demand. It projects loans and deposits to grow in the range of 5-7% in 2024.
Webster Financial witnessed an impressive revenue growth trajectory. NII and non-interest income saw a CAGR of 25.1% and 2.5%, respectively, over the last four years (2019-2023). Decent loan growth is expected to support NII growth in the upcoming quarters, though an increase in funding cost will weigh on it. Further, management expects net interest margin (NIM) in the first quarter of 2024 to grow by 3 basis points on the back of forecast originations and repositioning efforts. Past acquisition synergies have expanded and diversified the company’s revenue growth opportunities.
In the past six months, shares of this Zacks Rank #3 (Hold) company have gained 18% compared with the industry's 5.1% rise.
Image Source: Zacks Investment Research
However, high debt remains a challenge for the company. As of Dec 31, 2023, Webster Financial’s total debt (comprising long-term debt and federal home loan bank advances) was $3.41 billion, whereas cash and due from banks as well as interest-bearing deposits aggregated to $1.72 billion. Cash and due from banks have witnessed a volatile trend over the past few years. Thus, WBS is unlikely to meet its debt obligations if the economic situation deteriorates.
Webster Financial’s capital distribution activities remain another concern. It last hiked its dividend by 21% in April 2019. The company repurchased 2.67 million shares at a weighted average price of $40.49 per share in 2023. As of Dec 31, 2023, $293.4 million worth of shares remained under the current authorization. Though management expects to engage in capital distribution during the second half of 2024, low liquidity levels make the capital distribution plans seem unsustainable in the future.
As of Dec 31, 2023, WBS's loan portfolio comprised more than 80% of commercial loans (including commercial non-mortgage and commercial real estate loans). Amid the rapidly changing macroeconomic backdrop, commercial lending is likely to be strained. Thus, a concentrated loan portfolio is likely to put some pressure on the company’s financials in the event of an economic deterioration.
Stocks to Consider
A couple of better-ranked stocks from the banking space are Bridgewater Bancshares, Inc. (BWB - Free Report) and Camden National Corporation (CAC - Free Report) . BWB and CAC currently carry a Zacks Rank #1 (Strong Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for BWB’s 2024 earnings has moved 7.6% north over the past 60 days. In the past six months, its shares have risen 14.7%.
The Zacks Consensus Estimate for CAC’s 2024 earnings has moved upward 5.4% over the past 30 days. Its shares have risen 0.5% in the past six months.