Webster Financial Corporation ( WBS Quick Quote WBS - Free Report) remains well-positioned for organic growth, supported by a rise in loan and deposit balances. Also, improving mortgage banking scenario is a tailwind. However, the company is currently facing a continued rise in operating expenses. Also, it faces credit risk in case of any economic downturn.
The Zacks Consensus Estimate for current-year earnings has moved 1.8% downward over the past 60 days. It currently carries a Zacks Rank #3 (Hold).
Shares of Webster Financial have lost 44.3% compared with the
industry’s decline of 34.1% over the past six months.
The company has been witnessing a continuous rise in revenues. Net interest income and non-interest income have witnessed a respective compound annual growth rate of 9.5% and 4.6% over the past five years (2015-2019). Further, fee income is expected to benefit from favorable mortgage banking activities.
Further, the company has been witnessing steady growth in loans and deposit balance. Deposits recorded a five-year (2015-2019) CAGR of 6.7%, aided by rising non-interest-bearing deposits. Further, the company witnessed impressive loan growth at the same time, recording a CAGR of 2%. We believe that deposit and loan balances are poised to grow further with support from the decent economic backdrop.
However, mounting operating expenses have been hurting the company’s bottom-line growth. The same has witnessed a CAGR of 6.6% over the past five years (2015-2019). The company’s expenses might keep on increasing, owing to the initiative to grow the HSA Bank segment and transform Community Banking.
As of Mar 31, 2020, the company held a debt level of $3.6 billion (11.4% of total assets), and cash and equivalents of $268 million. The debt level has been increasing for the past few quarters, while the cash position has remained volatile. Therefore, with a declining time-interest-earned ratio of 6.7X over the past few quarters, which indicates the company's ability to meet its debt obligations based on current income, we believe Webster Financial has an enhanced likelihood of default of interest and debt repayments if the economic situation worsens.
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