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Webster Financial (WBS) Q1 Earnings Top, Stock Slips 2.6%

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Webster Financial (WBS - Free Report) reported a positive earnings surprise of 5% in first-quarter 2019. Adjusted earnings per share of $1.06 surpassed the Zacks Consensus Estimate of $1.01. Also, the bottom line increased 24.7% from the prior-year quarter.

Results reflect growth in revenues, with support from higher loans and deposits, along with improving interest margin. Also, lower provisions and the company’s strong capital position were a tailwind. However, investors’ disappointment was visible on rising expenses and lower fee income which led its share price to decline 2.6%, following the release.

After considering several non-recurring items, the company reported earnings applicable to common shareholders of $97.5 million or $1.06 per share, significantly up from $78.1 million or 85 cents in the prior-year quarter.

Revenue Growth Mitigates Higher Expenses, Loans Increase

Webster Financial’s total revenues in the first quarter increased 9.6%, year over year, to $310.2 million. The top-line figure came in line with the Zacks Consensus Estimate.

Net interest income grew 12.8% year over year to $241.6 million. Moreover, net interest margin expanded 30 basis points (bps) to 3.74%.

Non-interest income was around $68.6 million, slightly down year over year. The downside primarily resulted from a fall in income from wealth and investment services, mortgage banking activities and other income.

Non-interest expenses of $175.7 million escalated 2.4% from the year-ago quarter. This upswing mainly resulted from higher compensation and benefits expenses, technology and equipment, along with other expenses, partially offset by a fall in marketing and occupancy costs.

Efficiency ratio (on a non-GAAP basis) came in at 55.93% compared with 59.76% as of Mar 31, 2018. A lower ratio indicates improved profitability.   

The company’s total loans and leases as of Mar 31, 2019 were $18.81 billion, up 1.9% sequentially. Further, total deposits increased 4.1% from the previous quarter to $22.8 billion.  

Credit Quality: A Mixed Bag

Total non-performing assets were $164.4 million, up 17.4% from the year-ago quarter. In addition, the ratio of net charge-offs to annualized average loans came in at 0.21%, up 8 bps year over year.

However, allowance for loan losses represented 1.12% of total loans as of Mar 31, 2019, down 3 bps from Mar 31, 2018. Also, the provision for loan and lease losses slipped 21.8% to $8.6 million.

Improved Capital & Profitability Ratios

As of Mar 31, 2019, Tier 1 risk-based capital ratio was 12.17% compared with 11.75% as of Mar 31, 2018. Additionally, total risk-based capital ratio came in at 13.60% compared with 13.24% in the prior-year quarter. Tangible common equity ratio was 8.16%, up from 7.65% as of Mar 31, 2018.

Return on average assets was 1.44% in the reported quarter compared with the year-ago quarter’s 1.20%. As of Mar 31, 2019, return on average common stockholders' equity came in at 14.01%, up from 12.15% as of Mar 31, 2018.

Our Viewpoint

Stellar revenue growth, along with the strong loan and deposit balance, highlights Webster Financial’s decent performance in the Jan-Mar quarter. Further, the company’s capital position remained strong. Nonetheless, escalating expenses might partially impede its bottom-line growth.

Webster Financial Corporation Price, Consensus and EPS Surprise

Webster Financial Corporation Price, Consensus and EPS Surprise | Webster Financial Corporation Quote

Webster Financial currently 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

Texas Capital Bancshares Inc. (TCBI - Free Report) reported a positive earnings surprise of 19.4% in first-quarter 2019. Earnings per share of $1.60 comfortably surpassed the Zacks Consensus Estimate of $1.34. Further, the bottom line compared favorably with the prior-year quarter figure of $1.38.

Hancock Whitney Corporation’s (HWC - Free Report) first-quarter operating earnings per share of $1 outpaced the Zacks Consensus Estimate of 98 cents. The reported figure also came in 11.1% higher than the year-ago reported tally.

BancorpSouth (BXS - Free Report) delivered first-quarter 2019 net operating earnings of 56 cents per share, beating the Zacks Consensus Estimate of 54 cents. Also, the bottom line increased 3.7% from the prior-year quarter’s reported figure.

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