Shares of Webster Financial WBS gained 3.4% after it delivered a positive earnings surprise of 2% in second-quarter 2019. Earnings per share of $1.05 surpassed the Zacks Consensus Estimate of $1.03. Also, the bottom line increased 22.1% from the prior-year quarter.
Results reflect growth in revenues, with support from higher loans and improving interest margin. Further, fee income showed considerable improvement. Also, the company's strong capital position was a tailwind. However, higher expenses and provisions were headwinds.
The company reported earnings applicable to common shareholders of $96.2 million, up from $79.5 million in the prior-year quarter.
Revenue Growth Mitigates Higher Expenses, Loans Increase
Webster Financial's total revenues increased 8.3% year over year to $317.6 million. Also, the top line surpassed the Zacks Consensus Estimate of $314.2 million.
Net interest income grew 7.5% year over year to $241.8 million. Moreover, net interest margin expanded 6 basis points (bps) to 3.63%.
Non-interest income was around $75.9 million, up 10.9% year over year. The upswing mainly resulted from rise in all components except mortgage banking income.
Non-interest expenses of $180.6 million increased slightly 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 56.09% compared with 57.78% as of Jun 30, 2018. A lower ratio indicates improved profitability.
The company's total loans and leases as of Jun 30, 2019 were $19.27 billion, up 2.4% sequentially. However, total deposits decreased slightly from the previous quarter to $22.6 billion.
Credit Quality: A Mixed Bag
Total non-performing assets were $153.2 million, up 4.9% from the year-ago quarter. In addition, the ratio of net charge-offs to annualized average loans came in at 0.24%, up 5 bps year over year. Also, the provision for loan and lease losses increased13.3% to $11.9 million.
However, allowance for loan losses represented 1.10% of total loans as of Jun 30, 2019, down 5 bps from Jun 30, 2018.
Improved Capital & Profitability Ratios
As of Jun 30, 2019, Tier 1 risk-based capital ratio was 12.15% compared with 11.74% as of Jun 30, 2018. Additionally, total risk-based capital ratio came in at 13.54% compared with 13.21% in the prior-year quarter. Tangible common equity ratio was 8.31%, up from 7.75% as of Jun 30, 2018.
Return on average assets was 1.38% in the reported quarter compared with the year-ago quarter's 1.22%. As of Jun 30, 2019, return on average common stockholders' equity came in at 13.47%, up from 12.22% as of Jun 30, 2018.
Webster Financial is well positioned on revenue growth and strong loan balance. Further, the company's capital position is strong. Nonetheless, escalating expenses might partially impede its bottom-line growth in the near term.
Webster Financial Corporation Price, Consensus and EPS Surprise
Webster Financial Corporation price-consensus-eps-surprise-chart | Webster Financial Corporation Quote
Webster Financial currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Performance of Other Banks
SunTrust Banks' STI second-quarter 2019 adjusted earnings of $1.44 per share reflect a decline of 3.4% from the year-ago quarter. The Zacks Consensus Estimate for earnings for the quarter was pegged at $1.46.
BancorpSouth BXS reported second-quarter 2019 net operating earnings of 61 cents per share, which came in line with the Zacks Consensus Estimate. Also, the bottom line increased 8.9% from the prior-year quarter.
Driven by top-line strength, U.S. Bancorp's USB second-quarter 2019 earnings per share of $1.09 surpassed the Zacks Consensus Estimate of $1.07. Also, the reported figure is up 6.9% from the prior-year quarter.
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