A boost in top line and higher commercial lending drove Webster Financial Corp. 's ( WBS ) fourth-quarter 2013 earnings per share of 52 cents, beating the Zacks Consensus Estimate of 50 cents. However, earnings came in one cent lower than the prior-year quarter earnings of 53 cents.
For the full year 2013, the company recorded adjusted earnings per share of $1.93 compared with $1.86 in 2012. Moreover, earnings surpassed the Zacks Consensus Estimate of $1.91.
Webster Financial's intra-day stock price movement following the earnings release on Friday reflected positive investors' reaction. The stock closed at $31.74, increasing 3.7% from the previous day.
Results benefited from a rise in net interest income as well as non-interest income, partially offset by higher operating expenses. Loan and deposit balances showed continued improvement. Moreover, steady credit quality and improvement in capital ratios were the tailwinds for the quarter. Further, provisions for loan losses were higher while profitability ratios were a mixed bag.
Considering a one time pre-tax cost of $7.3 million, net income available to shareholders came in at $41.1 million, down 14.2% year over year. Further, for full-year 2013, net income came in at $168.7 million, decreasing 1.5% from $171.2 million in 2012.
Performance in Detail
Webster Financial's total revenue rose nearly 1.0% from the prior-year quarter to $227.3 million. However, revenues surpassed the Zacks Consensus Estimate of $203.0 million.
For 2013, total revenue came in at $886.0 million, down marginally from $886.3 million in 2012. However, total revenue surpassed the Zacks Consensus Estimate of $800.0 million.
Net interest income rose 5.2% year over year to $153.9 million. The rise was mainly attributable to higher interest income and lower interest expenses.
Net interest margin was stable compared with the prior-year quarter at 3.27%.
Non-interest income increased 11.4% year over year to $51.5 million. The growth was primarily due to a rise in wealth and investment services fee as well as other income, partially offset by a decline in mortgage banking activities. However, though mortgage business witnessed a year-over-year decline, it actually gained more than 300% sequentially, thereby indicating an overall recovery.
Non-interest expense was $125.0 million, up 2.4% from the prior-year quarter. The year over year increase was mainly due a rise in compensation and benefits, foreclosed and repossessed asset expenses and other expenditures.
The efficiency ratio for Webster Financial improved to 59.30% from 59.68% in the prior-year quarter. A reduction in efficiency ratio indicates increase in profitability.
Webster Financial's total loans as of Dec 31, 2013 were $12.7 billion, rising 5.6% from the year-ago quarter. Webster Financial's total deposits for the quarter climbed 2.8% year over year to $14.9 billion.
Apart from higher provision this quarter, Webster Financial's asset quality reflected improvement. The ratio of net charge-offs to annualized average loans came in at 0.45%, down 11 bps from the prior-year quarter.
On the other hand, total nonperforming assets were $171.6 million, down 13.4% from the year-ago quarter. The ratio of nonperforming loans to total loans fell 34 bps year over year to 1.28%. However, provision for loan losses rose 20% from the year-ago quarter to $9.0 million.
Capital and Profitability Ratios
Webster Financial's capital ratios were decent while profitability ratios were a mixed bag. As of Dec 31, 2013, Tier 1 risk-based capital ratio was 13.07% versus 12.47% as of Dec 31, 2012.
Total risk-based capital ratio came in at 14.21%, rising from 13.73% in prior-year quarter. Tangible common equity ratio was 7.49%, up from 7.15% as of Dec 31, 2012.
The return on average assets was 0.85% in the reported quarter, compared with 0.98% as of Dec 31, 2012. As of Dec 31, 2013, return on average stockholders' equity came in at 8.06%, down from 9.74% as of Dec 31, 2012.
Book value per common share was recorded at $22.77, up from $22.75 in the year-ago period.
Despite the present sluggish interest rate scenario, Webster Financial posted its third consecutive interest income growth this quarter. Moreover, we remain optimistic about the company's growth prospects given its improving credit quality and strong balance sheet.
Nevertheless, the sustainability of top-line growth is a concern due to bleak chances of interest rate revival in the near future. Moreover, stringent regulatory requirements are expected to constrict the company's earnings in the long term.
At present, Webster Financial has a Zacks Rank #2 (Buy).