Webster Financial (WBS) Up On Q1 Earnings Beat, Costs Rise

Shares of Webster Financial Corporation (NYSE:WBS) rose nearly 1.4% following its first quarter earnings release on Friday, before the opening bell. The company reported earnings of 62 cents per share, surpassing the Zacks Consensus Estimate of 57 cents. This was also up from 49 cents earned in the prior-year quarter.

Results benefited from top-line growth, partially offset by higher non-interest expenses. While loan and deposit balances showed continued improvement, nonperforming assets showed deterioration and credit quality remained mixed.

Net income available to shareholders came in at $57.3 million, up 27.7% year over year.

Revenue Growth Offsets Higher Expenses

Webster Financial’s total revenue rose 7.3% from the prior-year quarter to $255.7 million. Revenues marginally beat the Zacks Consensus Estimate of $255 million.

Net interest income grew 9.4% year over year to $192.7 million. The rise was mainly attributable to higher interest income and lower interest expenses. Moreover, net interest margin increased 11 basis points (bps) from the year-ago quarter to 3.22%.

Non-interest income was roughly $63 million, up 1.1% year over year. The growth was primarily prompted by a rise in deposit service fees, loan and lease related fees and wealth and investment services fee. These were, however, partially offset by no gain on investment securities, cash surrender value of life insurance policies, mortgage banking activities and other income.

Non-interest expense of $163.8 million climbed 7.4% from the prior-year quarter. The rise was mainly due to higher compensation and benefits expenses, occupancy expenses, technology and equipment, marketing costs and professional and outside services costs. The increase was partially offset by a fall in intangible assets amortization, loan workout expenses, deposit insurance costs and other expenses.

The company’s total loans and leases as of Mar 31, 2017 were $17.1 billion, up 0.4% sequentially. The rise was mainly attributable to an increase in commercial, commercial real estate and residential mortgage loans. However, the rise was partially offset by a fall in consumer loans. Further total deposits rose 4.9% from the prior month to $20.2 billion.

Credit Quality: A Mixed Bag

The ratio of net charge-offs to annualized average loans came in at 0.13%, down 28 basis points (bps) from the prior-year quarter.

However, total nonperforming assets were $177.9 million, up 22.1% from the year-ago quarter. Further, the ratio of nonperforming loans and leases to total loans and leases rose 13 bps year over year to 1.02%.

The provision for loan and lease losses fell 32.7% from the year-ago quarter to $10.5 million.

Strong Balance Sheet, Improved Profitability & Capital Ratios

As of Mar 31, 2017, Tier 1 risk-based capital ratio was 11.40% compared with 11.33% as of Mar 31, 2016.

Total risk-based capital ratio came in at 12.93%, increasing marginally from 12.8% in the prior-year quarter. Tangible common equity ratio was 7.34%, up from 7.13% as of Mar 31, 2016.

The return on average assets was 0.91% in the reported quarter compared with 0.76% in the prior-year quarter. As of Mar 31, 2017, return on average stockholders' equity came in at 9.43%, up from 7.80% as of Mar 31, 2016.

Our Take

Economic recovery and better interest rate scenario are anticipated to help the company witness better margins in the quarters ahead. Moreover, a rise in both deposits and loans indicates Webster Financial’s capacity for organic growth. Furthermore, the company’s strong capital position will likely bolster its financials in the quarters ahead.

Webster Financial Corporation Price, Consensus and EPS Surprise

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

Among other banks, First Commonwealth Financial Corporation (NYSE:FCF) and Sterling Bancorp (NYSE:STL) are slated to announce their first-quarter earnings on Apr 25 while Boston Private Financial Holdings, Inc. (NASDAQ:BPFH) will announce its first-quarter results on Apr 26.

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