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Webster Financial (WBS) Beats Q3 Earnings, Costs Increase

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Webster Financial (WBS - Free Report) reported third-quarter 2017 earnings per share of 67 cents, which surpassed the Zacks Consensus Estimate of 64 cents. The reported figure was up 24.1% from 54 cents earned in the prior-year quarter.

Results reflected growth in revenues. Also, loan and deposit balances showed continued improvement along with a strong capital position. However, lower fee income and higher non-interest expenses were the undermining factors.

Net income available to shareholders came in at $64.5 million, up 24.5% year over year.

Revenue Growth Offsets Higher Expenses

Webster Financial’s total revenues rose 7.8% from the prior-year quarter to $266.8 million. However, revenues lagged the Zacks Consensus Estimate of $269 million.

Net interest income grew 11.5% year over year to $200.9 million. The rise was mainly attributable to higher interest income. Moreover, net interest margin increased 20 basis points (bps) from the year-ago quarter to 3.30%.

Non-interest income was around $65.8 million, down nearly 1% year over year. The decline was primarily prompted by a fall in mortgage banking activities along withloan and lease related fees. These were, however, partially offset by higher deposit service fees and other income.

Non-interest expenses of $161.8 million climbed 3.7% from the prior-year quarter. The rise was mainly due to higher compensation and benefits expenses, deposit insurance along with technology and equipment. The increase was partially offset by a fall in intangible assets amortization, marketing expenses and loan workout costs.

Efficiency ratio came in at 59.18% compared with 61.43% as of Sep 30, 2017. A lower ratio indicates improved profitability.   

The company’s total loans and leases as of Sep 30, 2017 were $17.4 billion, up 1% sequentially. Further total deposits rose 1.9% from the prior month to $20.9 billion.  

Credit Quality: A Mixed Bag

The ratio of net charge-offs to annualized average loans came in at 0.18%, up 2 bps from the prior-year quarter. Also, total nonperforming loans were $163.6 million, up 27.6% from $128.2 in the year-ago quarter. Further, the allowance for loan losses represented 1.16% of total loans as of Sep 30, 2017 compared with 1.13% as of Sep 30, 2016.

However, the provision for loan and lease losses fell 28.8% from the year-ago quarter to $10.2 million.

Improved Capital & Profitability Ratios

As of Sep 30, 2017, Tier 1 risk-based capital ratio was 11.62% compared with 11.16% as of Sep 30, 2016. Also, total risk-based capital ratio came in at 13.14% compared with 12.64% in the prior-year quarter. Tangible common equity ratio was 7.55%, up from 7.25% as of Sep 30, 2016.

The return on average assets was 0.98% in the reported quarter compared with 0.82% in the prior-year quarter. As of Sep 30, 2017, return on average common stockholders' equity came in at 9.95%, up from 8.36% as of Sep 30, 2016.

Our Viewpoint

Webster Financial reported strong quarterly results as reflected from improved revenues and loans balance. Its strong capital position keeps it well poised to undertake growth initiatives. Also, its efforts to expand HSA Bank segment bode well for long term. However, the increase in expenses and deteriorating credit quality keep us apprehensive.

Webster Financial Corporation Price and EPS Surprise

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

Performance of Other Banks

First Republic Bank (FRC - Free Report) reported a negative earnings surprise of 1.7 % in third-quarter 2017, reflecting elevated expenses. Earnings per share came in at $1.14, missing the Zacks Consensus Estimate of $1.16. However, the figure improved 14% from the year-ago tally.

Riding on higher revenues, Comerica Incorporated (CMA - Free Report) reported a positive earnings surprise of 5.8% in third-quarter 2017. Adjusted earnings per share of $1.27 surpassed the Zacks Consensus Estimate of $1.20. The figure excludes restructuring charges and tax benefit from employee stock transactions.

Driven by top-line strength, Texas Capital Bancshares Inc. (TCBI - Free Report) reported a positive earnings surprise of around 1% in third-quarter 2017. Earnings per share of $1.12 outpaced the Zacks Consensus Estimate by a penny. Moreover, the bottom line came in 28.7% higher than the prior-year quarter figure of 87 cents.

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