Webster Financial Corp.
) reported its third quarter 2012 earnings of 48 cents per share,
marginally surpassing the Zacks Consensus Estimate of 46 cents. The
results also compares favorably with the prior-quarter earnings of
44 cents and prior-year quarter earnings of 45 cents.
The improvement in the quarterly results came on the back of
increased top line, partially offset by a marginal increase in
operating expenses. Moreover, asset quality, loan, and deposit
balances witnessed growth in the quarter. However, weak capital
ratios were the dampeners.
Net income available to shareholders for the reported quarter came
in at $44.4 million, up from $40.6 million in the prior quarter and
$41.4 million in the year-ago quarter.
Performance in Detail
Webster's total revenue inched up 0.7% from $219.3 million in the
prior-year quarter to $220.7 million. Moreover, revenue surpassed
the Zacks Consensus Estimate of $194.0 million by 13.8%.
Net interest income improved 2.3% year over year to $144.9 million.
The surge was mainly attributable to lower total interest expenses.
However, net interest margin dipped 21 basis points from the
prior-year quarter to 3.28%.
Non-interest income stood at $48.5 million, rising 8.5% from $44.7
million in the prior-year quarter. The increase was primarily due
to higher income from mortgage banking activities, wealth and
investment services as well as net gain on investment securities
and other income, partly offset by lower deposit service fees and
loan related fees.
Non-interest expense was $123.9 million, marginally up 0.5% from
$123.2 million in the prior-year quarter. The marginal rise was
mainly a result of higher compensation and benefits, marketing
expenditure and deposit insurance, partly offset by lower occupancy
costs, professional and outside services cost, foreclosed and
repossessed asset expenses, other expenses as well as contract
termination and severance expenditure along with branch and
facility optimization costs.
The efficiency ratio climbed to 62.25% from 62.22% in the prior
quarter. The hike in efficiency ratio indicates deterioration in
Asset quality witnessed improvement in the quarter. The ratio of
nonperforming loans to total loans dipped to 1.59% from 1.72% in
the prior quarter and 2.33% in the prior-year quarter.
Further, ratio of net charge offs to annualized average loans came
in at 0.61% in the reported quarter, up from 0.58% in the previous
quarter but down from 1.05% in the year-ago quarter. Total
nonperforming assets stood at $167.5 million, declined 3.5% from
last quarter and 30.2% from the year-ago period.
Loans and Deposits
Webster's total loans in the reported quarter were $11.7 billion,
rising 1.6% from previous quarter and 6.1% from the prior-year
quarter. The improvement was mainly driven by increases in loans
held for sale, commercial loans and commercial real estate loans.
Total deposits, for the quarter, expanded 3.1% sequentially and
6.1% on a year-over-year basis to $14.4 billion. The increase was
primarily due to the higher levels of demand deposits including
interest-bearing checking and money market deposits.
Profitability and Capital Ratios
Webster's profitability and capital ratios exhibited a modestly
cautious approach. As of September 30, 2012, tier 1 risk-based
capital ratio was 11.89% compared with 12.82% as of June 30, 2012
and 13.04% as of September 30, 2011.
Total risk-based capital ratio came in at 13.15% as against
14.08% in the prior quarter and 14.60% in the prior-year quarter.
Tangible common equity ratio stood at 7.39%, up from 7.22% as of
June 30, 2012 and 7.16% as of September 30, 2011.
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The return on average assets was 0.92% in the reported quarter
compared with 0.86% as of June 30, 2012 and 0.94% as of September
30, 2011. As of September 30, 2012, return on average stockholders'
equity came in at 9.18%, up from 8.62% from June 30, 2012 and 9.14%
as of September 30, 2011. Book value per common share was recorded
at $22.24, up from $21.65 in the prior quarter and $20.65 in the
We are quite impressed with Webster's decent top-line growth as
well as reducing operating expenses. Moreover, the company's
constantly improving credit quality and strong balance sheet are
expected to be beneficial to its overall expansion in the near
future. Nevertheless, we are concerned about the impacts of the
prevailing low interest rate environment, sluggish economic growth
and stringent regulatory landscape on the company's financials in
the subsequent quarters.
Webster currently retains a Zacks #2 Rank, which translates into a
short-term Buy rating. Other Zacks #2 Rank bank stocks include