A month has gone by since the last earnings report for Webster Financial (WBS). Shares have lost about 0.3% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Webster Financial due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Webster Financial Q3 Earnings Beat
Webster Financial delivered a positive earnings surprise of 4.3% in third-quarter 2018. Adjusted earnings per share of 98 cents surpassed the Zacks Consensus Estimate of 94 cents.
Results reflected growth in revenues with support from higher loans and improving interest margin. Also, the company's strong capital position was a tailwind. However, higher non-interest expenses remained an undermining factor.
After considering several non-recurring items, the company reported earnings applicable to common shareholders of $97.5 million or $1.06 per share, up from $62.4 million or 67 cents in the prior-year quarter. Revenue Growth Offsets Higher Expenses, Loans Increase
Webster Financial's total revenues in the quarter rose 13.5% from the year-ago quarter's figure to $302.7 million. Also, the metric exceeded the Zacks Consensus Estimate of $299.3 million.
Net interest income grew 14.7% year over year to $230.4 million. Moreover, net interest margin expanded 31 basis points (bps) from the year-earlier quarter's level to 3.61%.
Non-interest income was around $72.3 million, up nearly 8.9% year over year. This upside was primarily prompted by a rise in almost all components of non-interest income. These were however, partially countered by a fall in mortgage banking revenues.
Non-interest expenses of $178.8 million escalated 10.5% from the number recorded in the comparable quarter last year. The figure includes $2.9 million charge related to an accrual for deposit insurance assessments before 2018. Excluding this, costs rose 8.7% year over year on higher compensation and benefits expenses, other costs and technology plus equipment related costs.
Efficiency ratio (on a non-GAAP basis) came in at 57.41% compared with 59.18% as of Sep 30, 2017. A lower ratio indicates improved profitability.
The company's total loans and leases as of Sep 30 2018 were $18.3 billion, up 1.6% sequentially. However, total deposits increased 3.1% from the prior quarter to $22 billion. Credit Quality: A Mixed Bag
Total nonperforming assets were $158 million, down 7% from $169 million in the year-ago period. Further, allowance for loan losses represented 1.16% of total loans as of Sep 30, 2018, in line with the Sep 30, 2017 figure. Also, the ratio of net charge-offs to annualized average loans came in at 0.13%, down 5 bps year over year.
However, the provision for loan and lease losses rose 3.4% from the year-ago quarter's count to $10.5 million. Improved Capital & Profitability Ratios
As of Sep 30, 2018, Tier 1 risk-based capital ratio was 11.96% compared with 11.65% as of Sep 30, 2017. Also, total risk-based capital ratio came in at 13.44% compared with 13.17% in the prior-year quarter. Tangible common equity ratio was 7.86%, up from 7.55% as of Sep 30, 2017.
Return on average assets was 1.47% in the reported quarter compared with 0.98% in the year-ago period. As of Sep 30, 2018, return on average common stockholders' equity came in at 14.74%, up from 9.95% as of Sep 30, 2017. Outlook
Management expects average loans to increase 1-2% on a sequential basis.
The average earnings assets are expected to be up 1% sequentially.
NIM is expected to expand 4-6 bps sequentially. Expectations of a small increase in NIM are driven by expected increase in one-month LIBOR and Prime.
NII is anticipated to be up $6-$8 million. Non-interest income will likely be down between $3 million and $4 million.
Management expects provision for loan losses to increase in the fourth quarter, considering loan growth, portfolio mix, portfolio quality and net charge-offs.
Efficiency ratio is expected to be below 60%.
Management expects the tax rate on a non-FTE basis to be around 20%.
The average diluted share count is estimated to be about 92.3 million.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
Currently, Webster Financial has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Webster Financial has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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